The Rich

…have options:

Leaving aside the morality of abridging property rights based on income level, and the meaningless puddle this practice has melted our Constitution into, it seems reasonable to conclude there is a sweet spot on the Laffer curve: a point at which tax and regulatory burdens are low enough to encourage the most growth-oriented behavior from wealthy individuals and large corporations, but high enough to generate the income necessary to fund government without running huge deficits. The government must, in turn, live within its means. It must be small enough to survive on the funding provided by this optimum rate of taxation. Obviously, our current federal government has swollen far beyond this size, becoming a tumor that murders its host organism with increasingly frantic demands for greater nourishment.

Soak-the-rich policies are dismal failures, because they rely on controlling the behavior of people who have many options to escape. The promises of such systems depend on capturing extremely agile dollars. Those of us with fewer options, and less liquid income, always end up suffering the fallout from these failures. We live the dusty spaces left behind when billionaires decide not to follow the scripts prepared for them by Washington social engineers.

Unfortunately, the country is being run by economic ignorami. At least for another few months.

21 thoughts on “The Rich”

  1. “Soak-the-rich policies are dismal failures”

    In the 1950’s Top Marginal Tax Rates were 90% yet our society
    had wonderful demographics.

  2. News flash: It’s not the 1950’s.

    Get back to us after WWIII, and we’ll reconsider your point.

  3. Soak the rich? I don’t see any signs that the promised extension of the “Bush tax cuts” to those of us deserving “middle class” making “less than 250K.”

    Remember, that was a Team Obama campaign promise, that most of us apart from “the very rich” would “not see our taxes increased one dime.”

    Is there any plan to carry out that campaign promise, is there even any legislation in draft stage at this point?

  4. In the 1950’s Top Marginal Tax Rates were 90% yet our society had wonderful demographics.

    Perhaps you could tell us why you think the demographics in the 1950’s were wonderful. What did you like most about them? The segregation of whites and blacks? Did you think that demographic was wonderful? Perhaps you liked the tax codes of the 1950s that included poll taxes?

    jack seems to really like the those tax codes manipulating populations into his preferred demographics.

  5. “In the 1950’s Top Marginal Tax Rates were 90%…”

    What deductions were available? What counted as income? You don’t tell us.

  6. In the 1950’s Top Marginal Tax Rates were 90%

    Income and wealth are not the same thing. Howard Hughes paid no taxes at all when it was 90% because of tax write offs.

    Taxes come out of society as a whole. The actual fed tax rate has always been about 20%. Include state and local and it’s over 50%. The optimum tax rate is probably around 10%.

    Government spending is all about buying power. We need to end the charade.

  7. jack’s sound bite point is, of course, laughably irrelevant. In the 1950s there were far more brackets, so the average tax rate was considerably lower than it it is today. That top rate was paid by a teeny tiny fraction of the taxpayers, which is very different from the top rate today, paid by quite a lot of actual taxpayers.

    Furthermore, in the 1950s the tax system had a broad base. Even people earning very little forked over something. I recall, for example, earning $200 in 1978, at the age of 15, and forking over something like $15 or so in local, state and Federal taxes. It wouldn’t have occured to me to squawk about how “unfair” it was that I was chipping in my little bit while those earning $1 million might “only” be required to fork over $300,000 or so.

    Nowadays, half the people filing 1040s pay zero tax or actually get money back, with this evil pernicious scum thing called a “refundable tax credit,” another Orwellian success in twisting the language.

    That’s nuts. We need to broaden the tax base, not narrow it. Quite literally we need to “soak the poor,” because until nearly every citizen chips in his nickel or dime or $100,000, we do not have a commonwealth, a country where being a voter is pretty synonymous with being a taxpayer. It’s morally obscene and a direct invitation to corruption and disharmony to have 40% of the country paying the bills for the other 60%.

  8. It is perhaps ironic that the attempts to “soak the rich” have instead caught the middle class and in recent decades caused the Gini coefficient (disparity between rich and poor) in the US to increase dramatically to the point of potential revolution. The Gini coefficient in the US has increased from 0.35 to 0.45, same as China, in the last couple of decades. High growth rates hold off revolution in China.

    The Obama administration is in theory about more equitable wealth redistribution, yet by hollowing out the middle class their policies are in practice increasing wealth inequality and leading to greater social disharmony.

  9. In the 1950’s Top Marginal Tax Rates were 90% yet our society
    had wonderful demographics.

    As others have noted, very few actually paid 90%. Second, “wonderful demographics”? What does that even mean and why in the world do you even think it’s a valid measure of a tax policy? This sounds even dumber than your Bush obsession. I mean if we’re going to emphasize “wonderful demographics” over common sense, then it’s worth noting that your favorite villain, GWB put the most ethnically diverse president in the White House ever. You should be praising Bush rather than whining that Bush ate more babies than Obama did.

  10. In the 1950’s Top Marginal Tax Rates were 90% yet our society
    had wonderful demographics.

    I guess that poverty rates in the lower 20s equals good demographics.

    Libs love to trot this one out, failing to understand that we don’t live in the 1950’s anymore.

    At that time the U.S. was no more than a decade from winning a global war, having the only fully intact industrial machine on the face of the planet. We were busily building factories for Germans, Japanese and just about everyone else, with the commesurate flow of cash into our balance of payments. We single handedly rebuilt the decrepit French rail system as well.

    A little known but extremely significant factor was the spoils of war. What spoils? In previous wars, gold was taken by the victor, in our global war we took patents. We basically invalidated most German patents, covering the chemical, petrochemical, and other industries. Video tape is just one minor example of our spoils of war.

    When you have all of this, you can sustain a 90% tax rate.

    Today we do not live in that world, and all that would happen is that the taxed would remove themselves from the jurisdiction of the IRS, kinda like what John Kerry attempted with his yacht.

  11. When Sweet November comes, we will get a group of people who are bad at economics and fiscal discipline, just not as bad as the people in charge now.

    I would be ok with raising the taxes in the top bracket but only if each and every Democrat and talking head in the media had to make a video taped statement acknowledging that the Bush Tax Cuts had the greatest effect on people at the bottom and apologize for saying only wealthy people got a tax cut.

    Pre-Bush Tax Cuts, there were 5 brackets and now there are 6. Some of the people who were taxed at 28% got a 13% cut down to a 15% rate. The people at the top, got a 3.6% cut.

  12. Spot on, Carl, the love of the “earned income” credit is the root of all evil.

    In a telephone town hall meeting tonight, one of my Republican senators, Mike Crapo (that’s Cray-po) told of different gambits Republicans have been using to try to wring some kind of compromise from the Dems to mitigate the horror that will grip taxpayers when they’re confronted with the consequences of the expiration of the Bush tax cuts. It’s been pretty much of a lost cause, but he mentioned attempts to head off estate taxes which will zoom back up at the end of the year, along with capital gains taxes, etc. As most people know, it isn’t unusual for prudent middle class taxpayers, particularly small business owners, to accumulate wealth well in excess of $1 million throughout a lifetime of hard work. Those job creators are the people our current Progressive Congress seems intent on driving out of business.

    Senator Kyle recently introduced a bill to exempt the first $3.5 to $5 million of an estate’s value, but Reid refused to allow debate or a vote on it. But, Reid has legislation that will come up for a vote in September (Education, Medicaid and FAA reauthorization, I believe Crapo said) that’s a $26.1 billion spending bill depending on increased taxes on businesses, instead of a spending offset, which my senator thinks unspent stimulus money should allocated to instead. Republicans don’t have the votes to stop it, but Crapo is going to try to shoehorn an estate tax compromise into that bill. The senator said constituents will really have to hound the Democrats in order for the amendment to be adopted when the time comes for action next month.

  13. I’m sorry, my typos. Senator Kyle’s bill would increase the exemption from $3.5 million, as proposed by the administration, to $5 million. In my state, that’s very important to independent farmers.

  14. There’s a subtle point in one of the comments:

    Doc Zero makes one very major mistake here; the US does not tax wealth, the US taxes income. If the tax rates get to high the wealthy can stop working and life off of their accumulated wealth until a more favorable tax code is in place. The middle class has no such option.

    I could use this to segue into a pet project of mine (promoting asset/wealth taxes), but instead let’s consider how the US is restricted in the taxes it can collect and how that may have helped create the current situation.

    Congress can levy “direct” (taxes paid directly by a subject) and “indirect” taxes (taxes that tend to be paid during the course of an economic activity like making a purchase or importing a good), but there are restrictions. For my purposes, the key restriction is that direct taxes can only be paid either if they are proportional to population or on income (the exemption from the 16th Amendment).

    It’s pretty clear that the 16th Amendment led to the ability to grow the federal government and its power. This is one of the drivers of big government in our time. A more subtle point though is that it also encourages government to grow the income of its citizens rather than their wealth. I believe that boosts the incentives for inflationary policies (since the numerical value of income increases at the expense of wealth) and such things as minimum wage and restrictions on firing people (to the naive first order, more people are hired at higher income, hence more income tax revenue).

    Now let’s look at who benefits from such a taxation code. The obvious group are those who are wealthy, but don’t have taxable income, for example, people living off of a trust fund (either heirs or the bureaucracy that manages the fund).

    More generally, if one looks at the English aristocracy in its waning days, a clear symptom was that the aristocrat owned a lot of poorly performing wealth like mansions, land, etc. It just so happens that such a person would do relatively well under the current tax code of the US. Also, any staff or financial management related to such assets would do well. In other words, income tax favors aristocracy.

    Second, taxes on annuities, pensions, and similar income delivery devices are much lower than the value of the income stream would suggest. That is, getting an annuity that is worth a million current dollars but pays out over 15 years generates less tax cost than getting a million dollars right now. The reason is that such revenue would be more in the low income brackets than getting equivalent value all at once. This favors the public pensioner since they both have such a relatively low tax income stream and a revenue stream that is immune to all but the worst disasters of government.

    This latter bit has the effect of making it easier for a public bureaucrat to generate wealth compared to a low capital creator of value (like a small business). In other words, income tax favors a government bureaucrat with a pension. I think this has helped create the current situation, the creation of a class of “social engineers”, who just so happen to be favorably treated by current tax law compared to creators of value.

  15. As an aside, the incentives of income tax also mean materialism increases tax revenue. The more of your income that you spend on stuff, then the more taxable income that someone else gets. In other words, a “high velocity” of money and income-rich/wealth-poor citizenry are both desirable for government. I believe that provides a host of perverse economic and moral incentives for government.

  16. Those tax tables MfK linked to confirm what I’d read years ago. Did you ever wonder how they got the 16th Amendment authorizing the income tax ratified? Simple – it was sold to the public as a tax only on the rich. For the first year, those making less than $20K a year (and that was most people) paid no income tax. A few years later, everyone was paying taxes. A similar thing happened in the 1960s with the Alternative Minimum Tax (AMT). If was sold as a tax only on the rich. However, the morons in Congress never indexed it for inflation and now it applies to millions of families.

    Whenever you hear someone talking about taxing the rich, you’re hearing a moron and a demagogue. If you fall for their economic snake oil, better hold on to your wallet.

  17. In theory one should perhaps only pay for government services that one uses – poor and rich should pay the same tax. This infers a poll tax, however in practice there are so many cross subsidies that a flat tax rate is probably fairer – taxing all money (not people) equally.

    A concern I have with sales taxes is that they are becoming increasingly unenforceable in the age of international internet shopping. They are also at heart a transactional as opposed to wealth/income based tax and discourage high turnover.

    I have been wondering if there is some kind of inflation based tax system possible that completely avoids the need for a direct high compliance cost tax system and inherently taxes all money equally. Something along the lines of having the government continually print money (instead of collect tax) but give that money a half life so that the government can continue to print more in perpetuity. Not quite sure how to deal with fixed assets though (property, equipment, antiques, etc). Bartering economies also avoid such taxes (money, consumption, income, property taxes, etc.).

    This perhaps leads one back to a poll tax, one person, one vote, one tax, but for the cross subsidies and disparities of income…

    Maybe also a property tax (including personal property like cars, antiques, etc.) that applied an income tax to an estimated property value based on the national average ROI. This might discourage non performing wealth.

    One of the reasons for the property bubble is that governments (and local governments particularly) like broad individual property ownership as it gives them a solid unmobile constituency and tax base – a vested interest protection racket of sorts.

  18. governments (and local governments particularly) like broad individual property ownership

    And nothing wrong with that. After all, you want government’s interests to coincide with yours.

  19. Geographic freedom is a benefit for the individual, not always for the government. Making it harder for people to vote with their feet (perhaps the only democracy that really matters) helps cement a government’s monopoly position over its citizens. This monopoly tends to get abused by governments to the citizen’s detriment.

    I would suggest that California would be a lot more fiscally responsible if it was not so much of a hassle for people to move out of state.

  20. Whenever you hear someone talking about taxing the rich, you’re hearing a moron and a demagogue.

    Exactamundo. This is the opposite of the big lie. It’s the big truth and worth repeating over and over and over…

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