Tax distribution - ah ha! [Archive] - Quarter To Three Forums

mouselock

10-14-2009, 04:20 PM

Yeah, there's apparently very few datasets slicing up the top end though.

At the very least the cutoff points for the quintiles could be stated. I'd guess that the top quintile starts somewhere around $45k individual/$90k family income, which certainly doesn't strike me as egregiously well off, not to the extent of some of the comments on that blog such as:

2: I’m pretty sure you’re not even worth having a discussion with, but the alternative for that top 20% is pitchforks. I think the example of Louis XVI highlights that point nicely. Their wealth is dependent on everybody else agreeing to abide the system. If you want to advocate that a balanced tax is a poll tax, be my guest, but good luck sustaining a society that way.

(The above in reference to someone stating that the distribution of tax to wealth looks pretty progressive already, with which I would tend to agree.)

Anyone know how these statistics are actually collected? It makes a decent difference if, for example, all the teens and kids working their way through college are included in the lower quintile. I'm not sure I should be concerned with whether or not a college student is unduly taxed if he's still being claimed as (and presumably supported as) a dependant on his parent's tax forms, but it sure seems like given enough such instances at the low end of the income spectrum the tax burden on these people would look higher than it was with sloppy statistical treatment.

Jason McCullough

10-14-2009, 04:30 PM

If you click through the links and, I dunno, read it, you can see that the data is from the CBO and a Tax Foundation. In the comments at Lane Kenworthy they go over the generation methods, including transfer payments not, etc.

MikeP

10-14-2009, 04:42 PM

Mordrak

10-14-2009, 04:44 PM

(The above in reference to someone stating that the distribution of tax to wealth looks pretty progressive already, with which I would tend to agree.)

Anyone know how these statistics are actually collected? It makes a decent difference if, for example, all the teens and kids working their way through college are included in the lower quintile. I'm not sure I should be concerned with whether or not a college student is unduly taxed if he's still being claimed as (and presumably supported as) a dependant on his parent's tax forms, but it sure seems like given enough such instances at the low end of the income spectrum the tax burden on these people would look higher than it was with sloppy statistical treatment.

They use the term "households." If they are using it correctly, any teen (or otherwise) dependents are included in their parents household. No matter how sloppy their statistical, you just generalized the bottom quintile as teenagers? What are you? Rush Limbaugh?

Mordrak

10-14-2009, 04:49 PM

How is that not progressive? The lowest quintile is (eyeballing) paying about half of one might expect considering their percentage of pre-tax income. The second lowest quintile is getting a 20% break. What would you consider progressive?

The upper middle and top quintile are out of whack if it was consistently progressive. It's also important to look at how meaningful those tax differences in a progressive system, like Bushes tax cut where middle income households got 300 dollars back... but much larger tax cuts (in total dollars) were given to the wealthy. Woo?

mouselock

10-14-2009, 04:54 PM

You know, I looked through the special report and the working paper (100+ pages there, so only briefly) and the CBO report (all columnar numbers) and I can't find the referenced graph anywhere. I did, however, find that the Tax Foundation has come to the conclusion that simply looking at taxes is not an accurate indicator of the progressivity of the US tax system, since it doesn't account for effective transfers (as you mention).

What's particularly interesting to me, though, is that the blog you link to for the graph you provide tends to believe that the graph (which is seemingly unrelated to the report) supports his position that taxes are not progressive enough. "Progressive enough" is of course impossible to quantify, but the Tax Foundation report certainly makes the case that you're missing a chunk of the progressivity if you simply look at the tax/income picture.

It's amusing (and disheartening) that in these days a cut/paste of a graph can serve as data without requiring anyone to actually understand the points being made (or if those points were understood, at least address them).

Whether your cut and paste was intentionally disingenuous or not I don't know. I guess it depends on what your intent was in posting the graph. Given arguments made in past threads about the distribution of taxes/benefits I'd say it was, but perhaps through ignorance rather than through intent, since it takes at least three levels of indirection to get back to a primary source and actually read that the graph you present isn't the overall picture.

By the way, the conclusion of the tax foundation is:

Overall, we find that America's lowest-earning one-fifth of households received roughly $8.21 in government spending for each dollar of taxes paid in 2004. Households with middle-incomes received $1.30 per tax dollar, and America's highest-earning households received $0.41. Government spending targeted at the lowest-earning 60 percent of U.S. households is larger than what they paid in federal, state and local taxes. In 2004, between $1.03 trillion and $1.53 trillion was redistributed downward from the two highest income quintiles to the three lowest income quintiles through government taxes and spending policy.

These findings suggest tax distributions alone do not tell Americans how much the nation's fiscal system is helping or hurting low-income households. To answer that, we must look beyond tax burdens to government spending as well. Lawmakers who ignore the distribution of govern*ment spending risk making policy judgments based on an incorrect set of facts about the United States fiscal system.

Mordrak

10-14-2009, 04:59 PM

A flat tax would be progressive by that measurement. That seems disingenuous.

If I make 10 dollars and am taxed a 30 percent, I pay in 3 dollars.

Bob makes 100 dollars and is taxed at 30 percent, he pays in 30 dollars.

A public road costs 10 dollars which we both use. For for 3 dollars in, I get a public service worth 10 dollars and for Bob, it costs him 30 dollars to get a public service worth 10 dollars. Of course, that's ignoring that roads help Bob make 100 dollars to begin with...

Jason McCullough

10-14-2009, 05:02 PM

ydejin

10-14-2009, 05:07 PM

I'd be much more interested to see a similar chart divided by wealth not income.

Mordrak

10-14-2009, 05:09 PM

Phil_Stein

10-14-2009, 05:11 PM

Follow through to the original source, here (http://lanekenworthy.net/2009/01/05/how-progressive-are-our-taxes/).

First, rather than showing something like tax rates across quintiles, he's (purportedly) showing share of income and share of taxes. As others note, you can't really see the numbers, and you have to eyeball the ratios.

He points to 2 links as the source for his graph data.

The first link is to the CBO. I click through that, to the HTML version of their data. We can see shares of income and federal taxes by quintile, rather like the graph, except that it doesn't include state and local. Certainly, at the federal level, rates are pretty progressive, going from an effective rate of 4.3% at the lowest quintile to 25.2% for the highest, in 2004.

Anyways, we see an increase of 25.2 - 4.3 = 20.9 percent from low to high, and in ratio terms, it's 25.2/4.3 ~= 5.86X.

OK, so the other link is to a Tax Foundation study, and I guess this is where the blogger gets the state and local side of things. It's a little hard to tell what thing he's using from this page - there is a link up top to the 2007 Tax Foundation study, which eventually takes you (via one more link) to a different document from Special Report No 151, directly on the page in question. Skimming both, they appear to present similar information, though I'm guessing the 2007 study is the source document for the other. That study is here (http://www.taxfoundation.org/files/wp1.pdf).

It's a big document, with a lot of data, and I don't want to dig too deep into all the different ways they slice and dice the data. Figure 2 looks pretty much like what the blogger relied on, but the percentages there don't seem to match the CBO figures, even when you only look at the federal stuff (ignoring state and local). CBO shows (in table 2) that the lowest quintile pays 0.9 percent of "All Federal Taxes" under "Tax Liabilities", and the highest quintile pays 67.2 percent. The Tax Foundation graph shows lowest and highest quintiles paying 2.6% and 52.8% of Federal Taxes. These are both supposedly for 2004. I don't know how to reconcile the figures and don't want to read through the 123 page Tax Foundation document in detail to see what their methodology is.

mouselock

10-14-2009, 05:27 PM

What's misleading about it? The poor make jack shit to start with, so the transfers to them don't radically change things. The last comment here (http://lanekenworthy.net/2009/01/05/how-progressive-are-our-taxes/) discusses this.

What? That's not the picture from the Tax Foundation report at all. Look at their special report #151, specifically at Figure 7. The average tax burden per household of the bottom quintile is (31,185). That is, the average household in the bottom quintile receives $31k dollars in redistribution benefits. The average tax burden per household of the top quintile is $48,449, or they pay $48k in tax to provide those benefits. (Actually the top quintile provides all the tax benefits for the bottom quintile in whole, and a portion of the tax benefits for the 2nd from the bottom quintile. The rest is presumably made up for by the second from the top quintile, since the report finds an approximately net-equal input/output for the middle quintile.)

According to the report, this is over both federal and state taxes.

Your linked graph, on the other hand, presents (as near as I can tell, again I can't find the damn graph anywhere with a description of construction method) raw income percentages and raw tax percentages. The point (presumably) being made in your linked graph is that taxes are approximately flat since (to first approximation) the income/tax percentages line up for everyone (they're a little in favor of income in the bottom quintile, and one of those middle quintiles outright gets screwed by paying more in tax percentages than they get in income percentages - if anyone has that particular burden it really ought to be the top quintile of course).

Overall, though, the graph you link seems poorly constructed with no clue whether he's using adjusted numbers from something I can't see at best, or disingenuous at worse. It's certainly not at all in line with the conclusion of the Tax Foundation report, which is that taxes are more progressive than they seem at first glance when just considering numbers, because the effects of redistribution are not otherwise properly accounted for.

Jason McCullough

10-14-2009, 05:44 PM

You're misinterpreting; that 151 (http://www.taxfoundation.org/files/sr151.pdf) figure 7 is actually total spending - total taxes per quintile. That's what the $31k figure is, not benefits received; benefits are actually higher. Which makes the correct point that focusing just on taxes is not an accurate assessment of the net redistribution in our system.

That doesn't change, however, that the share of pretax national income matches up to the share of overall taxation surprisingly well, as seen in the graph. He's just combining the CBO income numbers by quintile with the tax foundation tax assessment by quintile. The final comment here (http://lanekenworthy.net/2009/01/05/how-progressive-are-our-taxes/) goes through alternate calculations based on how you included (or don't) transfer payments as income.

taxes are more progressive than they seem at first glance when just considering number

Taxes aren't, because government spending isn't taxes. Words do have meaning! The point that's being refuted here is the often-repeated conservative mantra that the rich pay a gigantic pile of taxes and the poor pay nothing. Even Bruce Barlett, who should know better, mentions "the bottom 50% of the income distribution doesn't pay any federal income taxes", which is a very misleading description of the tax system.

Mind you I think a not-that-progressive tax system is fine if the redistribution after the fact is noteworthy enough, and the tax foundation indicates something along those lines. But the tax distribution is separate from the spending distribution.

Huzurdaddi

10-14-2009, 05:49 PM

Fantastic graphic, thanks for the link.

mouselock

10-15-2009, 07:40 AM

That doesn't change, however, that the share of pretax national income matches up to the share of overall taxation surprisingly well, as seen in the graph.

...

Taxes aren't, because government spending isn't taxes. Words do have meaning! The point that's being refuted here is the often-repeated conservative mantra that the rich pay a gigantic pile of taxes and the poor pay nothing.

I guess it depends on point of view and what you choose to interpret the words to mean. The net tax burden is positive (pay out) at the upper end and negative (get paid) at the lower end. Now whether that means the rich "pay a gigantic pile of taxes and the poor pay nothing" depends on if you look at the gross taxes (then no, it's not true) or the net including benefits (looks pretty true to me). That being said, your point that gross tax burden falls on the poor as well as the rich is true, with most of the gross tax progressivism being stripped from the equation by the flatness of state and local taxes apparently.

I guess my quibble is more how you should define whether or not a tax is progressive since it seems rather disingenuous to just look at the actual tax amount (your linked graph) rather than the overall net benefit.

Thanks for clarifying though.

But the tax distribution is separate from the spending distribution.

This is true on the one hand, but on the other I can't believe anyone could say this with a straight face. If taxes got taken out for administrative and civil overhead, and then returned in kind based on how much you put in, I doubt the right would be nearly as incensed by taxation. I also doubt taxes would be nearly as high (assuming constant governmental "efficiency"). Without redistributive spending the tax burden on the higher quintiles would be lower, while the lower quintiles would be left to rot. This isn't something that I'm arguing is a good idea, but clearly the seperation of spending vs. distribution is only something that occurs in the most facile (or intentionally slanted) analyses. I suspect that when you see well-off people complaining about their tax burden they're actually complaining about the net effect ("I pay more absolute taxes than they do, and I see less absolute benefit from them"). The above seems true at a shallow glance, with the caveat that it's godawful difficult to actually calculate the intrinsic effect of institutionalized benefits. (i.e. By simply being born middle class you're more likely to improve your absolute income over the course of your life than someone born into the poorer classes; I have no idea if this is true with relative income, which would be an interesting metric to look at if someone has numbers.)

Dan Lawrence

10-15-2009, 09:08 AM

I guess it depends on point of view and what you choose to interpret the words to mean. The net tax burden is positive (pay out) at the upper end and negative (get paid) at the lower end. Now whether that means the rich "pay a gigantic pile of taxes and the poor pay nothing" depends on if you look at the gross taxes (then no, it's not true) or the net including benefits (looks pretty true to me). That being said, your point that gross tax burden falls on the poor as well as the rich is true, with most of the gross tax progressivism being stripped from the equation by the flatness of state and local taxes apparently.

I guess my quibble is more how you should define whether or not a tax is progressive since it seems rather disingenuous to just look at the actual tax amount (your linked graph) rather than the overall net benefit.

How is the net benefit of government spending being counted in your mind?

One thing that often bothers me is how often the indirect benefits of taxation and spending are overlooked. For instance who benefits when a thief is put into prison? Everyone paid their taxes to pay for his stay there but likely the people with something to steal benefited more than the poor from his incarceration.

Likewise, some government infrastructure improvements like faster broadband and good roads can benefit the wealthiest more - their businesses become more efficient, big lumps taken out of the 'costs' column and into the profits. I feel like a lot of taxation is spent on indirect benefits to the wealthy, that isn't immediately obvious. Even direct payments to the poor often indirectly help the wealthy - enabling them to pay lower wages without their staff dying on them for example.

I mean it seems obvious that there is some benefit to the wealthy of having a stable government and society but I'd love to see a study that attempted to calculate the indirect benefits of government spending per quintile.

mouselock

10-15-2009, 10:01 AM

How is the net benefit of government spending being counted in your mind?

In the directly measurable sense. There are indirect benefits of course, but it's not clear to me that those are as lopsided as you make them out to be. To wit:

One thing that often bothers me is how often the indirect benefits of taxation and spending are overlooked. For instance who benefits when a thief is put into prison? Everyone paid their taxes to pay for his stay there but likely the people with something to steal benefited more than the poor from his incarceration.

Really? If my stuff gets stolen I file an insurance claim and pay a deductible. What is the likelihood that the poor can do the same? Am I really that much better off when a thief is put into prison, or are you assuming that the thief is going to preferentially rob me over someone else? (I believe crime statistics in general disagree with you vehemently on this point.)

Likewise, some government infrastructure improvements like faster broadband and good roads can benefit the wealthiest more - their businesses become more efficient, big lumps taken out of the 'costs' column and into the profits.
Yeah, most shipping companies do indeed have a budget item for "Highway repair" themselves, eh? Oh, wait, no they don't.

But let's divest ourselves of consideration of shipping magnates for a moment and instead look at your typical worker drone types in any large metropolitan area, blue collar and white collar. Your typical white collar worker generally makes more, and can therefore afford to live closer to their place of employment (should they so choose). They have the means to mitigate the need to use those public highways. Your blue collar workers tend to live in outlying communities and commute in because the property is more affordable out there. Are you certain the net benefit is going more to the white collar worker than the blue here? (I am certain that a larger percentage, on a per capita level, is being paid by the white collar worker.. well, under my shorthand assumption that the white collar worker makes significantly more than the blue collar worker.)

As for broadband.. last I looked the only government subsidies there were to increase broadband penetration to rural areas. I'd be willing to be there aren't a ton of your top quintile living in heavily rural areas, though I'm sure there are some.

I find your conclusions.. ill-founded for the most part. The one I take no issue with is the fact that the government's redistribution of wealth to provide standard of living for the poorer segment of the population does have a benefit.. but of course, that's entirely the level of benefits and progressivism we were already talking about.

None of this isn't to say that taxation formulas needn't be tweaked. But I'll need to see much stronger evidence that I'm unduly benefitting from the standard costs of societal infrastructure before I'm willing to decide that my relative percentage burden should be even higher based on that argument.

Jason McCullough

10-15-2009, 10:46 AM

This is true on the one hand, but on the other I can't believe anyone could say this with a straight face.

Yeah, it's pretty crazy to not including spending as taxes! Next up: why aren't capital expenditures treated as labor costs? They're the same thing!

Blackadar

10-15-2009, 10:58 AM

A flat tax would be progressive by that measurement.

You're pretty much on target. Actually, this graph demonstrates that the tax system is virtually a flat tax.

As for this:

Originally Posted by The Tax Foundation
Overall, we find that America's lowest-earning one-fifth of households received roughly $8.21 in government spending for each dollar of taxes paid in 2004. Households with middle-incomes received $1.30 per tax dollar, and America's highest-earning households received $0.41. Government spending targeted at the lowest-earning 60 percent of U.S. households is larger than what they paid in federal, state and local taxes. In 2004, between $1.03 trillion and $1.53 trillion was redistributed downward from the two highest income quintiles to the three lowest income quintiles through government taxes and spending policy.

These findings suggest tax distributions alone do not tell Americans how much the nation's fiscal system is helping or hurting low-income households. To answer that, we must look beyond tax burdens to government spending as well. Lawmakers who ignore the distribution of government spending risk making policy judgments based on an incorrect set of facts about the United States fiscal system.

That's pretty much a joke. If you're going to look at spending, you have to look at not only who is getting direct distributions from the government, but who is the beneficiaries of contracts awarded by the government. Or do we think that the people who profited most from the contracts to Halliburton were poor people? Do you think that Eric Prince of Blackwater was poor prior to getting awarded contracts for outrageous amounts of money from the US Government?

Using The Tax Foundation study on taxes is using a Big Tobacco study on the effects of smoking. If you want to look at distributions, you look at all distributions. This study did no such thing.

Simply put, if you really want to look at tax policy, you should look at taxes versus wealth and not income. Wealth determines whether you can buy a house or a loaf of bread. Wealth determines whether you drive a Rolls Royce or a Scion. If you really want a fair tax policy - not even a progressive tax policy! - then you have to start looking at it from a wealth standpoint. And go research the numbers for yourself, because you'll find that the wealthiest do not pay their fair share of taxes in the USA.

Robert Sharp

10-15-2009, 11:12 AM

This really isn't my field, so could someone just answer a few very basic questions for me?

1. The percentages are as follows, correct? One is measuring the total amount of earned income (meaning salaries only?) for these people. The second is measuring the share of the tax burden for each quintile?

2. The fact that the percentages come out about the same in the above 2 categories is meant to suggest that our tax system is fair, right? So if you are in the group that makes 50% of the earned income then you are also in the group that pays 50% of the nation's taxes (in state, local, and federal income only). Is that right?

3. This is therefore NOT a progressive tax (according to the blog or someone?) because in fact the tax matches the percentage of income you are making. Is that right?

Number 3 especially confuses me. I thought progressive just meant that your tax burden matches your relative income level. So if the higher income people pay more in taxes, as a percentage of their income, it's a progressive tax. The real dollar amount isn't the issue. So I suppose the reason this isn't progressive is that the percentage of their income seems to match the percentages of everyone else? Is that what's being claimed here? In other words, the results of the chart above would be consistent with simply having a flat tax, right?

Edit: Damnit, blackadar posted his post as I was writing mine.

Dan Lawrence

10-15-2009, 12:23 PM

In the directly measurable sense. There are indirect benefits of course, but it's not clear to me that those are as lopsided as you make them out to be. To wit:

Really? If my stuff gets stolen I file an insurance claim and pay a deductible. What is the likelihood that the poor can do the same? Am I really that much better off when a thief is put into prison, or are you assuming that the thief is going to preferentially rob me over someone else? (I believe crime statistics in general disagree with you vehemently on this point.)

....

But let's divest ourselves of consideration of shipping magnates for a moment and instead look at your typical worker drone types in any large metropolitan area, blue collar and white collar. Your typical white collar worker generally makes more, and can therefore afford to live closer to their place of employment (should they so choose). They have the means to mitigate the need to use those public highways. Your blue collar workers tend to live in outlying communities and commute in because the property is more affordable out there. Are you certain the net benefit is going more to the white collar worker than the blue here? (I am certain that a larger percentage, on a per capita level, is being paid by the white collar worker.. well, under my shorthand assumption that the white collar worker makes significantly more than the blue collar worker.)

As for broadband.. last I looked the only government subsidies there were to increase broadband penetration to rural areas. I'd be willing to be there aren't a ton of your top quintile living in heavily rural areas, though I'm sure there are some.

I find your conclusions.. ill-founded for the most part. The one I take no issue with is the fact that the government's redistribution of wealth to provide standard of living for the poorer segment of the population does have a benefit.. but of course, that's entirely the level of benefits and progressivism we were already talking about.

None of this isn't to say that taxation formulas needn't be tweaked. But I'll need to see much stronger evidence that I'm unduly benefitting from the standard costs of societal infrastructure before I'm willing to decide that my relative percentage burden should be even higher based on that argument.

Sure, I only have my theories and the principle that the bigger you are the more you have to lose in the extreme no government/anarchy situation, to support them. Your counter examples are also interesting but it remains the case that noone wants to do business in Somalia.

However, I think it can't be denied that there are indirect benefits to government spending beyond the obvious direct transfers. Until we have some detailed investigation into what they are I feel that any analysis of the progressivity or not of government spending is significantly incomplete.

Yeah, most shipping companies do indeed have a budget item for "Highway repair" themselves, eh? Oh, wait, no they don't

They don't anymore but go back far enough and road maintenance, through turnpike intermediaries, was a direct cost of doing business along with the guards you had to guard the coach/caravan with.

AaronSofaer

10-15-2009, 01:22 PM

Mordrak

10-15-2009, 01:29 PM

Like I posted earlier, I'd love to see a more granular graph, one that instead of just doing quintiles does a breakdown every couple of percents. The top 20% is a massive bracket. A better question than "what does the top quintile pay" would be "what does the top 2% pay, including capital gains as income".

That would require our tax system to be that granular. You don't get bumped up to a new tax bracket with every 2% increase in income, not that this is necessarily tiered to tax brackets, but rather the results would be large number of your points would largely be the same.

Though, if the top 20% is that diverse where the bottom end of our top 20% doesn't "seem" like much, that should stop and make us think about how healthy our income distribution is. It's pretty had to get real data on what the top 2% pay from what I understand if that's your only goal.

ReptileHouse

10-15-2009, 03:06 PM

That would require our tax system to be that granular. You don't get bumped up to a new tax bracket with every 2% increase in income, not that this is necessarily tiered to tax brackets, but rather the results would be large number of your points would largely be the same.

I'm not convinced that's true. As income and net worth rises, there are significant changes in how that is recognized. For example, what proportion of income is from capitol gains. Likewise, if we include taxes that aren't strictly income-based, like property taxes, the curve won't map directly to federal income tax brackets.

Mordrak

10-15-2009, 03:18 PM

I'm not convinced that's true. As income and net worth rises, there are significant changes in how that is recognized. For example, what proportion of income is from capitol gains. Likewise, if we include taxes that aren't strictly income-based, like property taxes, the curve won't map directly to federal income tax brackets.

I think that's dramatically more true for the top 20% than for the bottom 80%. Perhaps wrongly, I thought he meant over all quintiles a breakdown of every couple of percentage points.

ReptileHouse

10-15-2009, 03:28 PM

I think that's dramatically more true for the top 20% than for the bottom 80%. Perhaps wrongly, I thought he meant over all quintiles a breakdown of every couple of percentage points.

Fair point. I suspect you're right that it gets far more interesting in that regard at the upper end of the graph. I think I was assuming a focus on the upper end since that's where most of the focus tends to be when talking about groups "not paying their fair share."

mouselock

10-15-2009, 03:51 PM

ReptileHouse

10-15-2009, 04:00 PM

I presume the theoretical basis for lower than income capitol gains rates is the fact that there's a potential for loss which is not represented in income in general?

I always figured it was a trickle down thing. You have enough money that you make a lot of it from capitol gains, so you pay the difference to lobbyists to get more tax cuts.

Less cynically, I gather it's intended to encourage longer term ownership stakes in public companies. The longer you hold a stock, the lower the tax rate on your profits. It's thus an attempt to financially incentivise people to take a longer term perspective with their investments and keep the markets more stable.

That may be a load of crap, but that's how I've heard it explained when I've asked that question. ;)

Huzurdaddi

10-15-2009, 04:03 PM

Anyone have figures on how much revenue would be produced if capitol gains were taxed at the same rate as income? It seems like this would be the most egregious tax break for the wealthy and would be a primary factor in the rich "not pulling their weight". I presume the theoretical basis for lower than income capitol gains rates is the fact that there's a potential for loss which is not represented in income in general?

I imagine that such numbers are quite hard to get. Larry Summers did a great talk on NPR a couple of years ago explaining why capital gains go up when the rate is reduced. He explained that the the modern tax shelter converts income in capital gains at varying rates of efficiency. As the capital gains rate goes down, or income tax rates go up, it makes sense for more money to be pushed into these tax shelters.

Anyway his explanation was very funny. The name of the talk was something like "What if everyone was called Lawrence" or something to that effect. Clearly I am misremembering the title since I can't google it. Anyway he was damn good.

I would figure we would need some very good models to predict what would happen. The lawyers that people with serious money employ are very crafty.

Mordrak

10-15-2009, 04:13 PM

I always figured it was a trickle down thing. You have enough money that you make a lot of it from capitol gains, so you pay the difference to lobbyists to get more tax cuts.

Less cynically, I gather it's intended to encourage longer term ownership stakes in public companies. The longer you hold a stock, the lower the tax rate on your profits. It's thus an attempt to financially incentivise people to take a longer term perspective with their investments and keep the markets more stable.

That may be a load of crap, but that's how I've heard it explained when I've asked that question. ;)

If you search around on QT3 there was a discussion about it earlier, I think it had to do with capitol gains being taxed on inflation, not just profit. I personally have some quibbles since I think, everyone is taxed at the rate they beat inflation, it's just that labor can't deflate below zero.

AaronSofaer

10-15-2009, 06:36 PM

That would require our tax system to be that granular. You don't get bumped up to a new tax bracket with every 2% increase in income, not that this is necessarily tiered to tax brackets, but rather the results would be large number of your points would largely be the same.

Though, if the top 20% is that diverse where the bottom end of our top 20% doesn't "seem" like much, that should stop and make us think about how healthy our income distribution is. It's pretty had to get real data on what the top 2% pay from what I understand if that's your only goal.

So what if large numbers of your points remain the same? that's a datum I'd also be interested in.

baruk

10-15-2009, 06:44 PM

2: I’m pretty sure you’re not even worth having a discussion with, but the alternative for that top 20% is pitchforks. I think the example of Louis XVI highlights that point nicely. Their wealth is dependent on everybody else agreeing to abide the system. If you want to advocate that a balanced tax is a poll tax, be my guest, but good luck sustaining a society that way.
(The above in reference to someone stating that the distribution of tax to wealth looks pretty progressive already, with which I would tend to agree.)

It was in reply to this:

Let’s see, the top 20% pay 50% of the total taxes. the bottom 20% pay nearly zero taxes and this isn’t progressive ENOUGH? WTF?

Mike K is implying that a poll tax is the regressive end of the tax spectrum, whilst the current system is way out at the other, progressive end. Is that fair? I don't think he is remarking on the income/tax share differences.
I agree with mpowell's comment in the sense that pointing out that the rich pay more in absolute taxes would make sense if you are arguing the case for a poll tax..