Keep in mind that all income is taxed at the same level. If you make for example 25 grand after deductions, it is taxed at 10% if the tax rate changes to 15% @ 32 grand, only the amount over 32 grand is taxed @ 15% etc. If taxes are increased on incomes over 250 grand, it is only the amount of income over 250 grand that is taxed @ the higher amount. One of the big problems being overlooked here is the amount of deductions and tax deferred income, which higher income individuals are able to use increases greatly with higher income, also those who make over the max for Social Security ( was around 112,000 when I retired) receive a tax break of 12.4% (6.2% on their pay stub and the matching 6.2% their employer pays. Note: I've been retired from IRS customer service for 5 years and don't keep up with all the changes so the actual income levels where rates change in the above example may not be correct.In my idea of a simplified version of a progressive income tax, ALL deductions would be eliminated and there would be no tax deferred income. Everyone would pay a percentage of the income he or she receives in the year it's received. No exceptions. It would be simpler and fairer. I estimate that 90% or more of the population would pay less than they pay now with all of their manipulations of exemptions and tax deferrals. A small percentage would pay the same. Of course, the ones who would pay more would balk at such a fair system because there would be no loopholes for them and they'd have pay their fair share--something they have never done under the present system of exemptions and loopholes. But, since the wealthiest people have the most power and influence over how our tax system is set up, we are unlikely to ever have a fair system and the wealthy will be able to create one that gives themselves enormous breaks on what they are required to pay while everyone else pays more to make up for the shortfall. And we're back to square one with a crazily complicated, unbalanced system. The complications only serve the wealthy--and they serve them well--but they are a burden to everyone else. LL
Keep in mind that all income is taxed at the same level. If you make for example 25 grand after deductions, it is taxed at 10% if the tax rate changes to 15% @ 32 grand, only the amount over 32 grand is taxed @ 15% etc. If taxes are increased on incomes over 250 grand, it is only the amount of income over 250 grand that is taxed @ the higher amount. One of the big problems being overlooked here is the amount of deductions and tax deferred income, which higher income individuals are able to use increases greatly with higher income, also those who make over the max for Social Security ( was around 112,000 when I retired) receive a tax break of 12.4% (6.2% on their pay stub and the matching 6.2% their employer pays. Note: I've been retired from IRS customer service for 5 years and don't keep up with all the changes so the actual income levels where rates change in the above example may not be correct.In my idea of a simplified version of a progressive income tax, ALL deductions would be eliminated and there would be no tax deferred income. Everyone would pay a percentage of the income he or she receives in the year it's received. No exceptions. It would be simpler and fairer. I estimate that 90% or more of the population would pay less than they pay now with all of their manipulations of exemptions and tax deferrals. A small percentage would pay the same. Of course, the ones who would pay more would balk at such a fair system because there would be no loopholes for them and they'd have pay their fair share--something they have never done under the present system of exemptions and loopholes. But, since the wealthiest people have the most power and influence over how our tax system is set up, we are unlikely to ever have a fair system and the wealthy will be able to create one that gives themselves enormous breaks on what they are required to pay while everyone else pays more to make up for the shortfall. And we're back to square one with a crazily complicated, unbalanced system. The complications only serve the wealthy--and they serve them well--but they are a burden to everyone else. LL Lois, Now I see that you are proposing a true flat tax. Your estimation that 90% of the population would pay less than they do now, is completely bogus. A large part of the population, that has income, (more than 10%) currently pay no income tax. So you would have a household that brings in 15k a year pay 1.5k in income tax (in a 10% flat tax scenario). Trading down to a less expensive cardboard box that they live in, won't make up that 1.5k. Someone making 10 million a year will pay 1 million. OOh dear, bless their hearts, what will their lifestyle be when they have to live on 9 million a year? How much more horrible and "unfair" and "immoral" would it be to have them taxed a 50%, so that they now have to somehow get by on $5 million a year? Oh the humanity! Might as well throw them out of the exploding Hindenburg. Jesus H. (allegedly) Christ! I thought that there were political progressives on this forum. Does no one get the point that there is a basic subsistence level of income vs. everything over that, to some extent, being gravy? Everything is monetarily stacked against low income earners in our society. If some single person making 50k gets a $100 speeding ticket, it may be annoying, embarrassing, slightly economically aversive. But if someone in a household (of multiple people) that brings in a total of 20k, gets a $100 surprise debt (from any source) they could be majorly screwed. Subsistence level income (whatever that is) should be taken off the table, in regards to income tax. A flat tax of income sounds so fair and reasonable, as long as you don't think too hard about it. It is not fair at all. If you want fairness, advocate no income tax. Advocate a flat tax of net worth. Oh, but you say, that would never work. It would be politically unviable, because those with wealth, have inordinate influence in our political system and would never allow it to happen. True. It would result in people manipulating and hiding their net worth in ways that would have adverse effects on the economy. Quite possibly true. But I thought you wanted FAIRNESS AND SIMPLICITY. As effed up, with complexities, as our tax system is, it is partially that way due to concepts of fairness. The rest of the complexities are due to the influence of wealth making entities doing what wealth making entities tend to try to so, preserve and make more wealth.
The problem with using numbers like this is it doesnt take into account the variation in cost of living in different parts of the country. A person making $100,000/ year in our part of the country is not likely t be very comfortable if he or she is supporting a spouse and two kids. Most likely they are living in a small cape on a quarter acre and paying a mortgage and property taxes that leaves them with little extra to spend. A couple making 250,000 is not starving but neither do they have tax shelters, chouffers, or a house in the south of france. A cop and a nurse with this kind of income in our area is living in a nice colonial home on a half acre and will be able to send their kids to college without taking out loans if they plan ahead but I don't think the average american would consider them wealthy if they saw their quality of life. The same income might allow someone to live like a king in the middle of Kansas but not in metropolitan NY or San Francisco. Wealth is a very relative term. This is where the details of these ideas become a problem. Middle America might see this as a reasonable plan but those of us who live in areas where the dollar doesn't go as far might disagree.Yes the numbers don't account for relative differences of cost-of-living per localities. But they are accurate and serve best for the general discussion, unless you are aware of numbers that do take that into account. (Another thing to consider is that those making high income, in high cost of living localities, are, often, making higher income, precisely because they live in higher income making areas.) But your point that lead to this discussion was that it is basically "immoral" to (my words) take from the rich and to give to the poor. It is true that a household in Bumfrick, So. Carolina, making 100k is likely living the same lifestyle as someone making $250k in parts of California or New York. Is it unfair, then, that they get inequitable federal progressive taxation? Yes, in many cases, I suspect so. This could be corrected with even more complexities to our tax system. But as you see in this thread, there is a pervasive aversion to complexities.
I hear you TimB, but you canāt help noting that two Nobel Prizes went to two plans that are known for taking the economics of the world and getting them up and the people back to work. I am talking about the Dawes and Marshall Plans. What it showed was when thing get bad and about to collapse the rich secure and hide their money and things get worse. The USA has just tried that system with the vase amount of money the government printed and gave away over the last eight years.
Now the government is running in circles not understanding why the Nobel Prize winning system didnāt work this time. Well, too many regulations and too much government is the reason. So no matter what system we have, we still have the same government running things.
Iāll have to go with Lois for the reason that I trust the rich more than I trust the government in running things.
These same tax questions get gone over every decade. The country use to before our times have depressions that caused havoc with the economy so we changed to the recessionary inflation system. The government set the inflation per year at two percent. This inflation is a windfall of cash to the government. Just paying the bond debt with inflated money is huge for the government. Now we have macgyver pointing out that couples earning a thousand bucks a working day are not rich. I remember not knowing how I could afford a 17,000 dollar house. The sixty dollars a month payment was a tough nut to crack. Today itās not even a tank of gas. One of the things that burns me is the government has informed us about three years ago that there has been no increase in the cost of living. Food is the same cost because Obama now rates food on protein value. So the government said instead of buying steaks, you can buy beans and have the same protein value. So food prices have stayed the same. And there is no need to include the cost of energy in the index. The food lines have grown the split between the rich and poor has more to do with government policies than the greed of the rich. Yes, I see the greed of the government as our major problem creating the classes of wealth.Low and very low incomes have not risen (in real terms) for almost 35 years. Very high incomes have gone up consistently and very significantly, extraordinarily, even. Meanwhile we have, literally, wasted trillions and trillions of dollars on ineffective military programs and incursions, and on the biggest prison system in the world that primarily produces recidivist criminals. I don't see problems like this as representative, as you seem to think, of the "greed of the government', so much so as the government being dysfunctional by responding to the greed of influential constituents, and of the government functioning rather stupidly, in general.
I hear you TimB, but you canāt help noting that two Nobel Prizes went to two plans that are known for taking the economics of the world and getting them up and the people back to work. I am talking about the Dawes and Marshall Plans. What it showed was when thing get bad and about to collapse the rich secure and hide their money and things get worse. The USA has just tried that system with the vase amount of money the government printed and gave away over the last eight years. Now the government is running in circles not understanding why the Nobel Prize winning system didnāt work this time. Well, too many regulations and too much government is the reason. So no matter what system we have, we still have the same government running things. Iāll have to go with Lois for the reason that I trust the rich more than I trust the government in running things.Mike you trust the rich, more than you trust the government? That is rather confusing to me, since the rich, pretty much, are the government, currently, in our system. At least, it is a fact that policies that are actually enacted in our system are overwhelmingly, those that are in line with what the economically elite want.
Thank humanity that some of the inordinately wealthy think the way I do. Otherwise, we would, truly, be royally screwed.
One of the big problems being overlooked here is the amount of deductions and tax deferred income, which higher income individuals are able to use increases greatly with higher income, also those who make over the max for Social Security ( was around 112,000 when I retired) receive a tax break of 12.4% (6.2% on their pay stub and the matching 6.2% their employer pays. Another deduction I personallly don't like is the deduction for mortgage interest on two houses at the same time. Mostly only higher income people can afford to purchase a main residence and a vacation home at the same time. .This is a very common misconception. People who make $250,000 generally don't have alot of fancy tools to avoid taxes. These are not billionaire CEOs and entrepreneurs. The majority of people in this tax bracket are small business owners who pay taxes like everyone else and many of them don't even enjoy the basic tax breaks that less lower earners get because the AMT wipes a lot of those things away. In regards to social security I need to point out a couple of things. First of all since many people in the $250,000 are indeed small business owners and self employed they are paying at least three time what others pay in social security taxes. As employers they have to pay both the employee 6.2% AND the employer 6.2% out of their own pockets. They are also paying the matching soc sec taxes for all of their employees. To claim that they are not paying into the system fairly because they are only taxed to the first 118,500 in 2015 is not completely correct. In my experience, you are wrong on this, particularly when it comes to small business. 1) The share of FICA (Social Security) that the employers pay are a business expense (a part of labor costs just like wages, and if you have ever negotiated a union contract as I have, you will quickly learn that this is counted as part of labor costs by all employers, one of the reason it was originally set up this way was so the employees only had to pay income tax on half their contributions. 2) Many people who make in the 205g range are the ones who are deducting mortgages on two homes. Also self-employed can deduct food costs (business dinners and bar tabs) travel expenses (one of the most abused deductions on fed. income tax). 3) personal deductions for themselves and children are worth 3 times more to a person in the 30% tax bracket than to someone in the 10% bracket, (basic math).
IMO, with the growing wealth inequality we are experiencing we are going to start having (if we havenāt already) a major economic crisis due to lack of demand. No one can sell product to a population who canāt afford it. Its called deflation. Now that the govāts have lowered interest rates to zero for all practical purposes another way will have to found to deal with it. The banking gimmicks the Fed and others are using can only exert minimum influence on this.
Check out Capital by Thomas Piketty
It is but equity, besides, that they who feed, clothe and lodge the whole body of the people, should have such a share of the produce of their own labor as to be themselves tolerably well, fed, clothed and lodged. Servants, laborers and workmen of different kinds, make up the far greater part of every great political society. But what improves the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. Pg. 90 Adam Smith Wealth of Nations.
But your point that lead to this discussion was that it is basically "immoral" to (my words) take from the rich and to give to the poor. .That's not what I said. What I said is that taking from the upper middle class to make life easier for the middle class was not morally justifiable.
But your point that lead to this discussion was that it is basically "immoral" to (my words) take from the rich and to give to the poor. .That's not what I said. What I said is that taking from the upper middle class to make life easier for the middle class was not morally justifiable. Actually IMO we should go back to taxing incomes above $1 million at 90 %, I agree that to do this on incomes below approx. this level is to much.
But your point that lead to this discussion was that it is basically "immoral" to (my words) take from the rich and to give to the poor. .That's not what I said. What I said is that taking from the upper middle class to make life easier for the middle class was not morally justifiable. True, not exactly what you said. That's why I parenthesized "(my words)". Although, unless my memory is completely amiss, I do recall you using some version of the word "moral" in there somewhere. I could go back and see.
...Actually IMO we should go back to taxing incomes above $1 million at 90 %...Thank you for being more progressive, in this thread, than me. BTW, wasn't the time that we did that, also around the time that we established such a strong vibrant, and growing middle class?
But your point that lead to this discussion was that it is basically "immoral" to (my words) take from the rich and to give to the poor. .That's not what I said. What I said is that taking from the upper middle class to make life easier for the middle class was not morally justifiable. True, not exactly what you said. That's why I parenthesized "(my words)". Although, unless my memory is completely amiss, I do recall you using some version of the word "moral" in there somewhere. I could go back and see. I never denied that. The president is talking about taxing people with incomes of $250,000 and above specifically to give tax relief to the middle class ( his words not mine) and I don't see any moral justification for that because we would be taxing hard working small business owners to help people who are not poor or destitute.
Tte do not But your point that lead to this discussion was that it is basically "immoral" to (my words) take from the rich and to give to the poor. .That's not what I said. What I said is that taking from the upper middle class to make life easier for the middle class was not morally justifiable. True, not exactly what you said. That's why I parenthesized "(my words)". Although, unless my memory is completely amiss, I do recall you using some version of the word "moral" in there somewhere. I could go back and see. I never denied that. The president is talking about taxing people with incomes of $250,000 and above specifically to give tax relief to the middle class ( his words not mine) and I don't see any moral justification for that because we would be taxing hard working small business owners to help people who are not poor or destitute. If the wealthiest (not upper middle class) but the wealthiest 5% were made to pay their fair share--which they do not do now-It would provide tax relief to everyone who is not wealthy. The problem withe taxing people with incomes of $250,000 is that that is far too low. What happens is those earning with incomes over $1 million have loopholes people mking less can't use. That way, the people with incomes between $250,000 wind up with the whole burden and those with incomes over $1million don't pay any more. Another problem is that unearned income--income from investments--is taxed at a much more favorable rate than earned income. This means that the people working for their income pay more and the people not working for their income get enormous breaks, pay less in taxes and keep more of their income than anyone lower down on the income scale. That's why there is so much income inequality in the United States. Tax inequality is a leading cause of income inequality. We need an overhaul of the whole tax sysyem, but the wealthiest Use their power to prevent any overhaul that would make them pay more. Nothing will change until we have a system that makes the wealthiest pay their fair share and stops requiring everyone else to pay more than their fair share. We will never have anything approaching income equality until the government changes the tax system to one that stops pandering to and favoring the wealthiest. Lois
But your point that lead to this discussion was that it is basically "immoral" to (my words) take from the rich and to give to the poor. .That's not what I said. What I said is that taking from the upper middle class to make life easier for the middle class was not morally justifiable. The problem is that the wealthiest get away scot free and the entire burden falls on the upper middle class. If the wealthiest paid their fair share, the burden on the upper middle class would be negligible. But everyone from the lower middle class to the upper middle class winds up paying the taxes the wealthy are allowed to avoid. The tax increase may fall on those earning $250,000 "and above" but "and above" effectively stops at or below $750,000. Above that, there is little to no tax increase because they can manipulate the system in ways that are not available to those lower down on the income scale. Lois
Consider the importance of negative feedback in stabilizing a system.
From the wiki on negative feedback here]
Negative feedback occurs when some function of the output of a system, process, or mechanism is fed back in a manner that tends to reduce the fluctuations in the output, whether caused by changes in the input or by other disturbances. Whereas positive feedback tends to lead to instability via exponential growth or oscillation, negative feedback generally promotes stability. Negative feedback tends to promote a settling to equilibrium, and reduces the effects of perturbations. Negative feedback loops in which just the right amount of correction is applied in the most timely manner can be very stable, accurate, and responsive. Negative feedback is widely used in mechanical and electronic engineering, but it also occurs naturally within living organisms, and can be seen in many other fields from chemistry and economics to physical systems such as the climate.Bold added by me. An unregulated capitalist economic system is akin to a system with positive feedback which produces instability. Some negative feedback, in the form of taxation etc. is needed to prevent the highly skewed distribution of wealth and income which is analogous to "distortion" in the system. The outcome of negative feedback is to emulate a more normal distribution of wealth and income in the system which is "stable, accurate and responsive" and.....equitable. From the wiki on the normal distribution here]
In probability theory, the normal (or Gaussian) distribution is a very commonly occurring continuous probability distributionāa function that tells the probability that any real observation will fall between any two real limits or real numbers, as the curve approaches zero on either side.Stability of the normal or Gaussian distribution:
The Gaussian distribution belongs to the family of stable distributions which are the attractors of sums of independent, identically distributed (i.i.d.) distributions whether or not the mean or variance is finite.Bold added by me. It is that simple and it makes good sense. Why not do it?
I hear you TimB, but you canāt help noting that two Nobel Prizes went to two plans that are known for taking the economics of the world and getting them up and the people back to work. I am talking about the Dawes and Marshall Plans. What it showed was when thing get bad and about to collapse the rich secure and hide their money and things get worse. The USA has just tried that system with the vase amount of money the government printed and gave away over the last eight years. Now the government is running in circles not understanding why the Nobel Prize winning system didnāt work this time. Well, too many regulations and too much government is the reason. So no matter what system we have, we still have the same government running things. Iāll have to go with Lois for the reason that I trust the rich more than I trust the government in running things.Mike you trust the rich, more than you trust the government? That is rather confusing to me, since the rich, pretty much, are the government, currently, in our system. At least, it is a fact that policies that are actually enacted in our system are overwhelmingly, those that are in line with what the economically elite want. I know, but it is more than that. You missed the part about over regulation. The government is the part that is causing people not to want to work and beating to death with regulation those who try to go into business. No more power to the government. Did you watch the department heads sit in front of congress and swear statements that latter proved to be lies? And congress did nothing. Then at budget time increased those departmentsā budgets. Washington has become a scam and fraud run by secret courts and departments. We are losing credibility around the world. Three out of every four dollars are use around the world. When they exchange the dollar for another safe haven currency to base their countries currency on, the dollar will crash. And with the system we have, Washington will try and print their way out of the problem. When that happens all retirements and savings will become worthless.
Consider the importance of negative feedback in stabilizing a system. From the wiki on negative feedback here]That simple, eh? Allow me to interpret. What I think Kkwan is saying is that is a good idea to use taxes to promote less disparity of wealth.Negative feedback occurs when some function of the output of a system, process, or mechanism is fed back in a manner that tends to reduce the fluctuations in the output, whether caused by changes in the input or by other disturbances. Whereas positive feedback tends to lead to instability via exponential growth or oscillation, negative feedback generally promotes stability. Negative feedback tends to promote a settling to equilibrium, and reduces the effects of perturbations. Negative feedback loops in which just the right amount of correction is applied in the most timely manner can be very stable, accurate, and responsive. Negative feedback is widely used in mechanical and electronic engineering, but it also occurs naturally within living organisms, and can be seen in many other fields from chemistry and economics to physical systems such as the climate.Bold added by me. An unregulated capitalist economic system is akin to a system with positive feedback which produces instability. Some negative feedback, in the form of taxation etc. is needed to prevent the highly skewed distribution of wealth and income which is analogous to "distortion" in the system. The outcome of negative feedback is to emulate a more normal distribution of wealth and income in the system which is "stable, accurate and responsive" and.....equitable. From the wiki on the normal distribution here]In probability theory, the normal (or Gaussian) distribution is a very commonly occurring continuous probability distributionāa function that tells the probability that any real observation will fall between any two real limits or real numbers, as the curve approaches zero on either side.Stability of the normal or Gaussian distribution:The Gaussian distribution belongs to the family of stable distributions which are the attractors of sums of independent, identically distributed (i.i.d.) distributions whether or not the mean or variance is finite.Bold added by me. It is that simple and it makes good sense. Why not do it?
The term middle class, is basically a political term that has no real definition. In this discussion, I think that this vagueness of definition is even more problematic than differences in definitions are in most argumentative dialogues.
Personally, I was surprised when looking at the actual data on household incomes. What I saw was 2012 data. 250k and over was in the top 5%.
If you define middle class as the middle 20% in terms of household income, the income levels were surprisingly low.