Lot of ignorance about taxation here.

[AP]

I just read in another thread the argument that if we make the federal tax code more progressive, you'll just have to pay for it in state and local tax increases (like property tax).

That statement has me shaking my head in sorrow. I just don't know how the democrats are ever going to fix what's wrong with society if democrats are saying that we don't need a progressive federal tax code.

If you have a progressive tax system, the economy will grow and be more productive (Keynes, anyone?).

So, I'm wondering, honestly, how much do you think you understand the math and economics of tax policy. Now, be honest, 'cause I can tell from reading posts here, that lots of people don't.

[JHB]

1. What thread was that in?

n/t

[trotsky]

2. Go easy

The right wing and their cohorts in the media have managed to convince people that cutting taxes will stimulate enough growth that the lower tax rates will then collect more revenue. Never mind that it's NEVER worked, people have gotten this drummed into their heads from the moment George Herbert Herbert Bush called it "voodoo economics."

Even many Democrats I know buy into it. Sadly, it's just a justification of Goebbel's "You repeat the big lie often enough, and people will eventually believe it."

[AP]

3. To the 56% of DU'ers who think they understand taxes:

Why aren't you contributing to these threads in which 90% of the posters reveal how little they know?

[ibegurpard]

4. Hahaha

:toast:

[Gore1FL]

19. I have

There was a flat tax thread that made me think this was FR, once.

I have argues that a flat tax is a Bush tax cut taken to the wextreme.

I have argues the most sensible tax-cut is the removal (or reduction) of the lowest bracket -- everyone paying taxes gets a cut that way.

[TahitiNut]

29. I've seen (and posted) decent analyses ...

... only to see them ignored and buried in adolescent grafitti. I read (in detail) about 1,000 times more than I post. What I read (and maybe what I post?) seems to follow the "80% garbage" rule. Discussion of issues gets buried in "People magazine" ad hominism and idolatry -- followed closely by shopworn memes and patellar responses. I've seen erudite, informative posts by IrateCitizen, ProfessorGAC, markses and several others result in threads dropping like stones into the effluence below the platform that's suspended by forum flatulence -- showing merely that methane-rich 'hot air' rises above golden nuggets. :shrug:

[wtmusic]

5. Give us a little primer, AP

I have never understood what 'progressive' means in that context.

[sangh0]

6. In a nutshell, progressive taxes mean

as you make more income, you pay a higher rate of taxes. One of the justifications for it is that the more you make, the more disposable income you have.

[wtmusic]

7. As opposed to a flat tax

I don't understand why any Democrat would be against that. Having a single mother making min. wage pay the same rate as Ahnold is ludicrous.

[AP]

9. A flat tax is VERY regressive.

If someone with a lower marginal valuation of an additional dollar is paying the same rate as you're paying, then your tax burden is higher. If A person who makes 100,000 times more than you make pays at the same rate, you have a HUGELY inequitable tax burden.

[patdem]

12. A poor person spends 99% of income on goods & services

so a poor person making $15,000 per year paying 10% of income on goods and services spends 15,000 x 99% x 10% that is %1,485.00 per year in taxes or 9.9% in taxes.

A person making say $350,000 per year spends...say 20% of income on goods and services which is $70,000 per year and pays 10% for taxes....he pays a total of $7,000 in taxes for the year or 2.0% of his income on taxes....

THAT IS A REGRESSIVE TAX..THE RICHER YOU ARE THE LESS YOU SPEND ON TAXES AS A PERCENT OF INCOME.

ONCE YOU REACH A CERTAIN THREASHOLD...NO ONE SPENDS ABOVE A CERTAIN AMOUNT....ONCE YOU PURCHASE THE 20 LBS OF CAVIAR...AND THE 500 BOTTLES OF CHAMPAIGN...AND IF YOU DONT WANT TO PAY TAX....CUT DOWN ON THE CAVIAR....NOT LIKE A POOR PERSON WHO MUST CUT DOWN ON MILK AND BREAD!

Forgive the CAPS...

[AP]

14. Yes, exactly. A person who makes 100,000 times more than you a year

doesn't go to 100,000 times more movies, and doesn't buy 100,000 times more organges, or 100,000 times more dishwashers. Of course, you can get your Viking stove, and your Rolls Royce, and your 5 mansions, but, for the most part there are diminishing social returns as you get richer and richer. Society would be way better off if more peolpe got a little richer than if a few people got super rich. But, as far as policy goals go, what's more important is not that redistributing income is your goal. Rather, you want a society that rewards people who work hard. Society gets better when people work hard, so you want to make sure that wealth results from hard work.

There are tons of people busting their asses who get no rewards, and there are thousands of people who get rewarded millions for making society crappier (Dick Cheney, the Bush family, e.g.). That's what's fucked up.

If society just rewarded hard work, you find that there's be a huge redistribution in income, that would then create even more social wealth. Europe is going through this experience right now.

And one of the best tools for rewarding work is through a progressive tax structure.

[AP]

15. About sales tax...a lot of people I know in the middle class are going...

...into deeper debt, year on year.

A lot of that debt is from consumer goods purchases which incurred sales tax. That's the equivalent of paying paying income tax on money you never got. You're financing your tax burden, and paying interest on it to the banks. That's, like, beyond regressive. They're going to have to come up with a new term to describe it. "Hyperregressive'? Any suggestions.

[TahitiNut]

32. Those with NO income pay an infinite tax rate!

Remember, "unemployed" often means no income. Any taxation whatsoever (sales and property, for example) is, in effect, a 'tax rate' that's theoretically infinite -- typically multiple additional taxes on already taxed dollars without the 'benefit' of congruently-applied deductions and exemptions. ("Income averaging" was eliminated years ago.)

[AP]

8. The justification is. more accurately, the more you make, the easier

it is to make more money, so you have decreasing marginal valuations of an additional dollar as you have more dollars.

To make sure that the tax burden is equalized allong the entire income range, you can't ask people who have higher marginal valuations of an additional dollar in income to pay the same marginal rates as someone who has a lower valuation. If the government did that, basically the government would be creating a situation in which it was making it harder for poor people to compete with rich people.

There are plenty of reasons rich people have an easier time of it in the marketplace than poor people, but I think everyone agrees that the government should be just about the last institution to be adding to that burden.

Steve Forbes knows how this works. Dick Cheney knows how this works. But the average poster here at DU, I believe, doesn't have a clue how this works.

We can all see when Bush hands over money to Haliburton that that is a transfer of wealth from the tax payer to the tax reciever. Well, every day in the tax code there's a bigger transfer of wealth from the working and middle class to the wealthy, and nobody notices. There's an invisble man with a gun to your back and his hand on your wallet, and meanwhile we have Democrats at DU arguing that they don't want more progressive taxes because it's only worth $7.50 a week, and you'll just be paying more in property tax anyway.

OK. Multiply $7.50 by the 70 million middle class Americans who are paying that much. That's the money that's going to Haliburton. That's the burden you're bearing, that the rich aren't bearing (and, in fact, is the money that's making them rich). As for the property tax misconception, it's just that -- a misconception.

[slackmaster]

10. Keynesian theory breaks down when deficit spending goes unchecked

We have problems on both sides of the balance sheet. California provides a fine example, where income has been reduced due to the condition of the overall economy. It takes only a simple majority in the legislature to spend money, but the law requires a 2/3 majority to approve new taxes.

Deficit spending is fine as long as the borrowing and spending are both done wisely and with a long-term vision of balance that does not depend on inflation to make the plan work.

Progressive taxation of higher income people also breaks down if you push it too hard. Try to tax people 100% of their income and surely your revenue will drop to zero. The trick is to make it attractive for high earners to stay within the tax base and not simply leave the country or go underground; to charge people at the highest rate they are willing to pay without deciding that avoiding paying taxes is a higher priority than creating wealth.

If you have a progressive tax system, the economy will grow and be more productive (Keynes, anyone?).

It's easy to talk in generalities but very hard to come up with a tax system that everyone feels is slightly unfair but grudgingly accepts as the cost of having an orderly society that meets peoples' needs. If you push taxpayers too hard they either leave or revolt. (California Proposition 13, anyone?)

[AP]

11. Nobody's talking about pushing anything too far.

We're just talking about pushing things back towards progressivity and away from the regressivity of the current system.

Marginal rates should always match marginal valuations at different income levels.

When money was easy to make in the US (late 40s to mid 50s) we had high marginal rates on high income levels, which was the right thing to do to keep the economy going. More money coming into the government meant the government could continue to invest in the infrastrtucture which could create the playing field on which more people could make even larger contributions to the economy.

When the economy cooled off, and when more middle income people creepted up into the higher brackets (thus eliminating progressivity, and turning the code into a punitive structure) Eisenhower didn't lower the tax rates and shift the brackets out, partly because he didn't want the Republican party to be deemed the party of the wealthy.

When JFK became president he lowered the rates to match economic reality. In a sense, that was the progressive thing to do.

Because the reality of income generation changes all the time in America, the tax codes have to change frequently to match that reality. They rarely change, and it's a constant struggle between Republicans trying to make them more regressive, and Democrats trying to get tiny increments of progressivity.

The problem is that this kind of thing -- wealth and money -- is what it's all about, and money has way too much influence on politics. Money has a very easy time of protecting itself, and as a result we have this slow erosion of the progressive tax code that FDR built. (And of course FDR had an easier time of it when the government had the power to confront business, which it doesn't have now because government is smaller and a few businesses are very large and very powerful.)

And to get the wealthy on board is a difficult thing. Ideally, the government should get the rich on board by convincing them that the money the gov't takes in taxes is being invested in ways to create a bigger, more efficient market, which will make them wealthier if they chose to compete fairly and effectively in that market.

But you know what rich people want more than money? They want a sure thing. I guarantee you that many rich large corporations -- the ones that really run America (and these aren't the ones that make money off of selling products people need to a wealthy, happy middle and working class, they're the companies that make money off of money -- you know what I'm talking about, half of GE's profits now come from finanance, and not from lightbulbs or even Tim Russert's advertising revenue) --
would prefer to have a sure thing that gives them a little more money than they have now, rather than a chance for a lot of money which they have to work for. (However, Dick Cheney is proving with Haliburton that you can get a windfall without having to do anything at all -- is Haliburton giving those soldiers any of the meals we, as taxpayers, are paying millions for them to provide?)

So the problem is that you have this static wealth that is very politically powerful, and they don't care if tax money is going to be invested into creating a bigger better market. They don't want the government investing money in a way which requires them to have to compete to maintain profitability. With the Republicans, they have a sure thing in a crumbling economy. What more could you ask for?

[AP]

13. C'mon folks. Taxes. Gotta care about it, or we'll win a few battles, lose

the war.

[sandnsea]

16. You're doing great

There was no place for me to vote. I feel I understand taxes and economy, but some people know alot more and some don't. Then, of course, there's just old-fashioned differences of opinion. Like somebody said back in pre-Kennedy high tax days, the people had to use the business loopholes which insured money kept going into the economy. Now that was a new one on me, but it made a certain kind of sense.

[Nevernose]

17. There's a benefit to a flat tax --

A lot of people (including myself, from time to time) fell that a flat tax would help to end a lot of the corporate and political corruption that has devastated American politics. No more loopholes and tax shelters would certainly go a long way towards making a fair political system.

Anyone remember when Arlen Specter had a rider inserted in a tax bill stating that anyone who founded a toy company in Pennsylvania on a certain day in November in 1978 was exempt from all income taxes forever? (The founder of Worlds of Wonder was one of his biggest campaign contributors)

Or when McDonald's got $6 million in tax breaks for advertising McNuggets in Taiwan?

Or the current loophole wherein if one makes more than 80k and buys a Hummer, then one pays no income taxes this year?

A flat tax might be the only way to end this kind of bullshit.

[Gore1FL]

20. A flat tax is the Bush tax cuts multiplied several times

A flat tax is a Bush tax cut -except more extreme.

in just a few percentage points from the top rate, less than 1% recieved over half of the tax cuts. A flat tax would magnify that inequity several times over.

If the goal is to cut loopholes, cut loopholes. Flattening the tax to implement such a solution is like poisoning the dog to get rid of it's fleas.

[AP]

21. The fact is, corps do manage to reduce their effective rate to a tenth

of their actual rate through dedcutions. However, giving up progressivity to achieve the end of corporate abuse is a very steep price to pay. And you have to remember that corporations biggest deductions from income are employee salaries. If they lost this incentive, there'd might be a big effect on salaries (you think it's bad now?)

It's also folly in this climate to imagine that a flat corporate income tax with few deductions wouldn't be exploited very quickly, because one of the results of a flat tax is that more wealth and power flows towards the top end of the income ladder. I'm sure the powerful would figure out a way to get de facto deductions, and a lowering of their effective rate of taxation.

Anyway, I imagine that many big businesses and rich individuals might be willing to forego many deductions if the poor and middle class lost their deductions too, because a flat tax is so regressive, and soon they'd get their wage slaves between a rock and a hard place and the rich would probably experience even bigger benefits.

[uptohere]

24. or how about this...

... have a consumption tax and no income tax. Those who make below X dollars a year get a refund generally equal to what they paid (this to lend some progressivity to the model).

In this way you being into the fold all the organized and disorganized crime money and get a piece of the pie on all the expensive toys rich people buy.

Probably could use a little tweaking here and there but what do yu think of this as a starting point ?

[AP]

26. A consuption tax only would be hyper-regressive

Do you know middle and working class people who go into debt year-on-year? I do.

Why do people go into debt? Because they spend more than they make. Granted, people go into debt buying things that aren't taxed (now) like college tuition. However, the second largest purchase for most people, after your home, is a car, which is taxed. And buying goods which are taxed definitely sends you over the edge.

So, if you finance the government from consumption taxes alone, that would be the equivalent of taxing many people for income they never receive. Furthermore, it'd be a boon for the credit card companies. If the gov't is adding on to the costs of the goods you buy, it means you're going to have finance even more of your debt, which results in more interest income for credit card companies. And note that you're paying interest to a private company on your taxes. That's highly sick.

For the wealthy -- who are wealthy because they spend (much) less than they make -- they'd be more than willing to pay the equivalent of a small flat tax on a tiny percentage of their wealth, rather than a higher, progressive income tax on all their anual income.

Get it?

The point of a progressive income tax is that it takes into account how much you have. A sales tax doesn't care how much wealth you already have.

[uptohere]

28. but perhaps you forget the tax system's loopholes

OK Joe Millionaire presently is in a higher tax bracket but he is generally clever enough to reduce his tax burdon via loopholes to a small portion of what he actually earns and thereby reduces his tax liability to less than middle class.

I don't have to look further than my own brother who literally pays NO income tax due to deductions and he is wealthy. But he DOES buy lots of things. And his wife buys more.

OK so you provide some relief by exepmting or scaling taxes on houses or cars (used cars like mine, x%, new luxury ones like my brother's x+y%).

Like I said, tweaking would be in order but the main thing is to take the deduction "shell game" out of play completely.

[AP]

30. AltMinInc Tax means that it's harder for individuals to exploit loopholes.

Millionaires save tax money by having more control over how they receive their income.

They lower their effective rates by getting stock options and not selling them for a year so they benefit from the lower long term capital gains rate (which I think is around 25%), or they get their income in the form of dividends, which is also taxed at a flat, low rate. Another trick over the next 8 or so years will be inheritance.

By the way, the alternative minimum income tax kicks in at about 75K, which is a middle class two-income family.

However, there's no Alternative Minimum Income Tax for corporations.

[uptohere]

36. yes they do but they still buy Hummers, sailboats, polo ponies...

and even if they get the company to do it to conceal their compensation, those can get taxed while their corresponding compensation does not today.

[TahitiNut]

33. The only 'flat tax' I'd support ...

... is a 'hog tax' of 10% on all income (net of taxes already paid) above $304,000 (the top 1%) adjusted in constant 2002 dollars. That tax should be paid by both individuals and corporations, where the corporate income taxed would be NIB(T)DA (net operating income less other taxes).

[AP]

34. I think there is a huge variation even within the top 1%

of marginal valuations of additional dollar (from the doctor/lawyer couples making 300,000 and having to give up a couple weekends to wokr to make an extra 10,000 bucks, incurring risks like professional negligence suits) all the way up to the CEO, or trust fund baby, or whatever, making 4 million a year, mostly in stock options and stock tips from insider friends, who can make an extra 10,000 bucks in their sleep. Why should they both pay the same.

I don't think it'd be fare to tax even that small number (1% of taxpayers) the same marginal rate throughout that entire income range (300K to infinity).

[Ein]

18. Nothing!

But I picked up an FDR bio, and plan on looking into Keynes! Hell yea! I've been stalling on it all b/c economics is so dry.

[mrbill]

22. texas property taxes for $2000 alex..........

[Democat]

23. How progressive are you talking about

I enjoy arguing with Greens who think it should be 100% on anything over $50,000 a year. Anyone who makes over $50,000 a year is rich, after all. :)

[paulsbc]

25. and with their system

no one makes over $50,000 a year now, do they? :)

[AP]

27. see post 11. I'm saying 'progressive', not 'punitive'

They have to match real marginal valuations of an additional dollar.

[TahitiNut]

31. State & Local Taxes in 2002

The Institute on Taxation and Economic Policy (ITEP) updated its analysis (by income quintile) of A Distributional Analysis of the Tax Systems in All 50 States for 2002. Constituting between 15 and 50% of all taxes paid by a "typical" taxpayer, these taxes aptly portray just how enormously regressive our overall tax system is and is increasingly becoming.

One of their findings indicates how increasingly regressive such taxes have gotten in 13 years. Between 1989 and 2002, the bottom 20% of income earners saw their state & local tax burden increase by 1.2% of their income, while the top 1% saw their tax burden decrease by 0.3% of their (greater) income. Compounding this of course, the lowest quintile saw their income itself decline (in real dollars) while the upper quintiles saw their income increase, the higher the quintile the greater the increase.

Thus, we have a tax system which compounds income inequity by increasing the burden on the losers and reducing the burden on the winners -- precisely the reverse of fair taxation where those who benefit most should pay for that benefit.

Not surprisingly to DUers, this inequity is, by far, the greatest in the most increasingly neoconservative states. Washington, Florida, Tennessee, South Dakota, Texas, Illinois, Michigan, Pennsylvania, Nevada and Alabama have the most regressive tax policies. These ten states ask their poorest residents — those in the bottom 20 percent of the income scale — to pay up to five-and-a-half times as great a share of their earnings in taxes as they ask the wealthy to pay.

But to get an even fairer perspective, it must be carefully noted that the least regressive state (California) still does not have a progressive tax policy. The top 20% still pay less state and local taxes as a share of their income than the bottom 20%!!!

In California, the least regressive state, the 2002 tax burden (net of federal tax offsets) was
11.3% for the lowest quintile ($11,100 average income),
10.1% for the second quintile ($23,700 average income),
9.2% for the third quintile ($38,300 average income),
8.7% for the fourth quintile ($61,900 average income),
8.1% for the next 15% ($111,200 average income),
7.6% for the next 4% ($241,700 average income), and
7.2% for the top 1% (income above $567,000!!).

And that's the least regressive state! :puke:

[AP]

35. dsc, please read this.

.

[TahitiNut]

37. Q.E.D.

As I said, "I've seen erudite, informative posts by IrateCitizen, ProfessorGAC, markses and several others result in threads dropping like stones into the effluence below the platform that's suspended by forum flatulence -- showing merely that methane-rich 'hot air' rises above golden nuggets."