A DUer asked me whether I thought it was fair for the

[JDPriestly]

government to increase taxes on the wealthy because of the gambling on Wall Street and the fiscal condition of the U.S.

Here is what I said. What do you think?



Our government represents the majority will of the people. As long as you receive just compensation, the government may take your private property.

The wealthy receive incredible benefits from the taxes that everyone pays, incredible benefits from the government, from other Americans, far more than the rest of us.

Let's take a guy who owns a trucking company. The most obvious benefits he gets are the highways, the interstates. Then there are the publicly supported airways where he can catch a plane and check on what his company is doing.

He probably hires employees and most likely all of them can read. After all, they have driver's licenses, don't they. That means that the majority of them went to public schools at the expense of taxpayers. I had two children who went to public schools. They benefited and I benefited from that. But their employers benefit the most from their educations.

The trucks the guy owns probably meet safety standards thanks to government regulations that require automobile makers to produce safe products. The government sees to it. Our friend's profits go up because he doesn't have to rebuild his trucks just to make them safe.

Then there is the fact that when the guy's drivers go out on the highways, the owner of the trucking company can be pretty sure that the cargo in the trucks won't be hijacked, that the streets and freeways will be safe, that other drivers will drive with care. And all this, the guy who owns the trucking company owes to the government.

He can also be fairly certain that the prescription drugs his drivers may be taking bear warnings if they might make the driver drowsy. The food the driver eats at the truck stops during his working day will probably also be safe -- thanks to some government agency, either federal or local, the police, the FBI, the DA's office.

Also, the owner of the trucking company can be fairly certain that his drivers will not be struck by some serious contagious disease or some contaminant in the water -- thanks to government agencies.

And that is to say nothing about the security that the government provides in conjunction with the owners of the ports - no terrorists, hopefully no poisons or bombs being transported along with the goods that our truck company owner carries in his trucks, thanks to all kinds of agencies.

And then, there is the fact that the U.S. itself has been safe from invasion and serious war here on the central part of our soil since the Civil War. We have a huge military. It defends the dollar (whether we want it to or not).

The government provides a court in which the truck company owner can seek justice if someone steals from him, if he is cheated, if has trouble getting someone to pay him and even, if he has to take his company into bankruptcy. He pays his lawyers, but he pays very little for the benefit of courts that enforce not just public laws but also his contract provisions.

Oh, and then there is the state agency that protects him from lawsuits from employees who are injured -- the one that requires worker's compensation insurance. Instead of spending years in the courts and disputing liability for a worker's injuries, the government requires the employer to buy insurance. As an employer, our trucker probably won't get sued unless he is extremely careless or purposely endangers his employees in running his company.

These are just a few of the benefits the owners of businesses get from their and our tax money. The bigger the company, the more it does, the more benefits it gets. The richer the person, the more he is taking from the government.

Let's say that this wealthy individual owns a 40-room mansion out in a beautiful location in the city on the top of a hill surrounded by a couple of acres of land. He is getting a lot more police and fire protection than I am in my small house on a small lot with a very visible view of the front of the house from the street.

I pay much lower taxes and at a lower rate than the owner of the trucking company because my income is lower. Seems fair to me.

And yes, if I run a stop sign, I have to pay a fine. A disproportionate number of our wealthy citizens gambled in the stock market. When the bets were going well, they got the benefits from their gambling. They should pay for the losses which include the stimulus package.

[xchrom]

1. Recommend

[Rabrrrrrr]

2. Very well said - our taxes do provide a lot of services that some benefit from far more than others

Granted, your business owner is benefiting from the highways that his trucks ride on, but we are also benefiting in that food or furniture or iPods are able to come to us, so we all win - but I think you make a compelling and good argument that the business owners benefit more. Certainly they benefit more financially from the roads, the FDA, Social Security, water and sewage systems, police and fire protection, and so on.

Great way to think about the issue!

[Make7]

3. If George W. Bush and the Republican Congress thought their tax cuts should expire, ...

... who am I to question their wisdom?
 

[daylan b]

4. Not sure I know of a single progressive who doesn't think those who earn more should pay higher rate

The question is how much is enough.

[JDPriestly]

12. Our economy flourished when we imposed taxes over 50% on

the top marginal amounts.

[daylan b]

20. The top marginal rate was over 50% from 1932 to 1986.

...over half a century. Our economy did pretty much everything in the book during that time period.

Since 1987, when the rate has been lower than 50% we have done the same with both some of the biggest recessions and biggest booms we've ever seen.

Bottom line, the impact the highest marginal tax rate has on the economy is small.

[JDPriestly]

23. I remember the Eisenhower recession. I was a child.

It was nothing compared to this one.

We had a growing economy during all those years.

During WWII, it was considered patriotic to buy US treasury bonds.

My mother still buys them. And she has done very well on them
Encourage ordinary people to buy US Treasury bonds with some of the money they scrimp and save.

When one of my aunts died, she left me a bond that had been bought in my name. She had served as a WAC in WWII. It wasn't the money that made me remember her beautiful gesture. It was her reminder to me about the sacrifices that were made for my country by the many people who served in that war and who bought those bonds.

It may not make sense in terms of economics, but those bonds were an expression of love for America, faith in our country. It was a way of saying, we are all in this together. We truly are one nation. Buying those bonds again was an act of sacrifice. Where is that devotion to country today? Instead of "Buy bonds," we are hearing invest in mutual funds that build factories in China.

The high tax rates were good for America. Somehow the wealthy lack the kind of patriotism that sacrifices a bit for your country -- because your country is good to you.

It's the kids on my street -- especially the immigrants -- who are signing up for the military, not the kids of the rich.

Sorry for the ramble. This is an emotional issue, not just a matter of numbers. I lived through the recessions since the 1940s. The 1980s were bad, but the rest of them were relatively short-lived and not that deep.

[daylan b]

24. Back to my original point...

...the question is how much is enough. Only the far right people are proposing a flat tax and unfortuantely, it is a matter of numbers, not emotion.

Secondly, we already have a progressive tax structure for income tax. The rich pay a disproportionately large portion of the income tax our government brings in. It's the lower capital gains (income you don't work for) tax rate that is flat.

[JDPriestly]

The top marginal rate now is only 35%

It was 25% in the 1920s. When you raise that rate up to 50% or 60% you will get a healthier economy. In addition, the rate on the capital gains taxes exceeding a certain amount should be raised in my opinion.

I would add a tax on incomes derived from stocks that are held only for a short time and then traded -- to discourage the derivatives traders. This tax should not be very high, but it should be enough to discourage people, especially smaller investors, from taking risks and playing the derivatives tables when they don't know what they are doing. It would reward and encourage people to make longer term investments. Those who want to gamble should help pay for the risk that their gambling imposes on small investors who are really just trying to save for retirement or the education of their grandchildren.

[daylan b]

34. The rate was also 35% during the boom of the 1990s.

I'm well aware of what the current tax rate is. Either side of the argument can pick a decade to make their point but the reality is there have been ups and downs in both high and low marginal tax periods.

[JDPriestly]

36. My husband made a pretty detailed analysis of the tax rates

since the 1920s. As for the rates in the 1990s, have you forgotten the dot.com boom?

I decided in 1997 that the economy was going for a bust, for a crisis. I was doing some work in a very public place and heard a bunch of professionals -- attorneys to be exact -- trading stock tips. A doctor of our acquaintance was neglecting his practice in order to do day-trading. Those facts caused me to guess (accurately) that we were in a boom that would bust before long.

Some years ago, I read just about every book I could find in my library on the crisis of 1929. Do you know about "Sell 'em Ben"? Interesting individual.

[daylan b]

37. If you think I forgot it you have no clue what I'm actually saying.

Those types of things actually exactly what I'm speaking of. Factors other than the top marginal tax rate are what decide where the economy goes. We run the economy, not the government.

If you are trying to claim the switch from 25% in 1925-1931 to 63%+ in 1932 is what got us out of the great depression, that's just a preposterous as you implying I overlooked the dotcom boom.

[JDPriestly]

38. It was one factor -- an important factor.

Fact is, that we get a pattern on this one factor. When the marginal tax rate goes very low, we get a boom that turns to a bust -- and the differenced between the boom and bust is greater than in times when the marginal tax rage does not go so low.

Of course, we exported more than we imported in 1929. We did not have a trade deficit then.

Even though jobs were not being exported, we still had extremely high unemployment in the 1930s as now.

One thing was similar -- there was a big difference between rich and poor -- bigger than there is when our economy has good times and not so good times, but no really, really big crisis.

Today, outsourcing and the trade imbalance caused by our "free trade" policy have to take some of the blame for the lack of jobs. But the fact that the marginal tax rate is too low is probably the biggest factor. Because the fundamental problem is the fact that the middle-class, working class and really poor can't consume, can't purchase available services.

How would you propose to increase the buying power of the middle- working- and poor classes other than raising the marginal tax rate?

[JDPriestly]

26. The top marginal rate now is only 35%

It was 25% in the 1920s. When you raise that rate up to 50% or 60% you will get a healthier economy. In addition, the rate on the capital gains taxes exceeding a certain amount should be raised in my opinon.

[AnArmyVeteran]

5. Great example! That's a keeper. But one addition...

The only thing I'd add would be to make traffic violations proportional to a person's income. If fines were truly in place to act as a way to force compliance with the law the punishment should be equally harsh on both the poor and the rich. Example: If someone making minimum wage runs a stop sign their fine should be say $20. But if a billionaire commits the same offense he should have to pay a $50,000 fine. Under current law the rich can just laugh at a small fine and it's no deterrent at all, but even a low $20 fine means a poor person will have to do without something.

Unfortunately, our current laws are much more severe for the poor than the rich. If a wealthy person steals millions they get token fines and rarely go to jail. But if you are poor you can go to prison for a long time for committing a relatively minor offense. One poor guy in California was given a life sentence for stealing a candy bar. It was his third strike in the '3 strikes and you're out' law. There are no comparable punishments for the rich.

GW Bush's brother Neil Bush, was one of seven defendants who stole one BILLION dollars from the Silverado Savings and Loan in Denver, Colorado but he only had to pay a paltry fine of $50,000. And he didn't spend a day in jail. White collar criminals know they can steal as much as they want because the more they steal the smaller their punishment with respect to their crimes.

BTW: I understand about the possible constitutional complications that a progressive punishment system might encounter, but I'm sick of the worst criminals virtually getting away with their crimes. A lot of people would gladly steal a billion dollars knowing if they were caught they wolud only have to pay a token fine of $50,000.

[Overseas]

18. Good points! //nt

[patrice]

6. AND the fact that the trucking company owner is receiving all of those benefits from my taxes makes

it that much harder, should I discover that in my heart of hearts I too am a truck company owner, for me and others like me to succeed at trucking - BECAUSE OF TAXES THAT I PAY.

There's also the issue of things like: say, I discover that I'm NOT a trucker in my heart of hearts, but, rather a player of a musical instrument known as the french-horn, so I go off to school where I learn that, because the local school board is comprised of employees and church members of the local very successful truckers, any education budget cuts that happen somehow always turn out to be in the arts and music. No french horns! In fact, most constituents haven't even heard of the french horn. AND, though I conduct an independent search and discover a private french horn school some several miles away, the fact that the trucking culture, which I and my family support with our taxes, dominates my social and economic environment creates added burdens and challenges to my development, in getting to the french horn school, which may or may not have an appropriately talented french horn teacher who somehow ended up there in trucker heaven, and which I or my parents will have to take on the added burden of working extra to pay for, UNLIKE the sons and daughters of truck lovers who need nothing more than football and little-miss beauty pageants to fulfill their hearts' desires.

Tax Cuts are Economic DISCRIMINATION.

[JDPriestly]

13. How right you are, patrice.

Behind every successful artist, there is either a wealthy father, a rich lover or a very hungry stomach.

[patrice]

15. There's this assumption in tax cuts for the wealthy create jobs that all jobs, any job, is the right

job.

It doesn't matter what you do as long as it makes money.

THAT'S Slavery.

[patrice]

7. ooooppps

[housewolf]

8. Excellent reply - what did your recipient have to say in return?

just curious...

[JDPriestly]

14. No answer yet. He or she was just asking me. I don't know his or her view on the issue.

[Arkana]

9. No one's raising taxes on the wealthy--we're simply allowing tax cuts to expire.

Calling it a tax increase is buying into the Republican spin.

[jobycom]

10. I always tell people we are a pay-per-use restaurant, not a one price buffet.

The more a person uses our resources, the more they should pay in taxes. The less, the less.

That's how the tax code is set up, for the most part. The assumption is that the more a person or company profits, the more they have taken advantage of the resources. Those include, as you point out, the infrastructure like highways and airports and hydroelectric dams. They include police, fire, military, and emergency services which protect businesses as well as individuals--the more employees at a site, the more protection they need.

They also include money itself, and not just the paper. The whole economic infrastructure of various types of money mediums (stocks, bonds, coins, paper, mortgages, everything else) is maintained by government. Read Alcibiades_mysteries's post on the front page, and you'll learn more than just the meaning of "kvetching" (come to think of it, he never does explain what that means). Government regulation stabilizes the markets even for the investors who whine about how much it all costs. Without strong regulation, businesses would have less confidence in every stage of our money supply, and that would result in higher prices, higher interest rates, etc. In fact, you can make a good argument that the crash of 2008 had a lot to do with undermining that confidence by deregulations.

Business is also helped by the social spending the rich hate so much. Money is kept in circulation by unemployment, food stamps, social security, and other spending programs, so that the economy won't fall too far during a crunch. It also stabilizes the wild economic swings, maybe limiting some of the heights businesses could reach, but in turn limiting the depths the economy could collapse to--which helps businesses as well as individuals.

It's an expensive nation to run, and those who whine loudest about those expenses are the people who cause the greatest expenses. So absolutely they should pay proportional to their use. That calculation is based mostly on profit in our tax system, but it is adjusted for expenses, for payroll, for charitable contributions (which pay back to society, so they reduce our society's expenses), etc.

But the flip side is that the wealthy do pay back. They employ a lot of people (and get tax breaks proportional to those numbers), provide research and development and quality-of-life inventions and products (for which consumers pay them), and they often provide markets for smaller businesses to use for their own prophets. GM, for instance, creates dealerships, parts stores, tire dealers, insurance companies, credit issuers, and lots more. So it's not a one way street for the wealthy. And the tax structure acknowledges that by allowing deductions for expenses that pay back into society (payroll, charity, green investments, etc).

Anyway, my random contribution to your excellent post. :)

[JDPriestly]

17. Thanks.

If the wealthy had really paid back in the last 30 or so years, we would not be in the mess we are in. They would have invested their money in productive companies. People would have jobs and homes. Our communities would be healthy. That is not what they did. Too many of them gambled on Wall Street. They gave money to the likes of Bernie Madoff thinking that all they had to do was accept the checks and ask no questions.

That money could have been well spent, well invested. If the wealthy had invested their tax cuts in the ways that the economists thought they would, no one would be talking about letting the cuts end.

Unfortunately, just as the decline in the housing and job markets have hurt many, many people who did not buy houses they could not afford or fail to do their work well, all of the wealthy will probably see their tax rates go back up.

Bush tried out an economic theory. It didn't work. It was an experiment. We have to try something else.

The Republicans talk a lot about empowering private businesses, especially small business so that they can hire and stimulate the economy. Sounds great. But the massive Bush tax cuts were supposed to have empowered them. And look where it got us. You have to empower both private business and consumers. There has to be balance.

And, like it or not, history shows that when the economy gets really out of balance, when investors can't afford to invest because consumers can't afford to buy, then the government has to step in big time.

Obama has not done enough. Very few Americans like this reality, but then we don't like root canals either even though they can literally save your life.

In the current economy, the government has to take the leadership role in recovery. The wealthy were given their big chance with the Bush tax cuts. They dropped the ball.

Obama, it's your play.

[jobycom]

25. That's pretty good.

It hasn't all been about tax cuts. There have been deregulations that allowed businesses to invest poorly, and of course the economy has other factors that affect it. But in general, I agree with the point that taxes have been weighted too heavily to the wealthy, with the idea that they would trickle down. Classic Reaganomics.

However, there are patterns within that 30 years that prove that Reaganomics is flawed. When Reagan first passed his tax cuts, rather than the economy improving, it crashed supremely. It had actually been improving when Reagan took office, but his tax cuts destroyed that. When the second wave of Reagan's cuts hit, we had another collapse, and very slow growth out of the hole created by the double dip. Afterwards, even Reagan began seeing his mistake, and signed seven straight tax increases, including one touted at the time as the largest ever. After these cuts, the economy began it's slow, sickly climb, until around the time Reagan left it was back up to where it had been when he took over.

Even within tax cuts, though, there are differences. Reagan's cuts favored the wealthy too heavily, and that's why the economy crashed. Clinton's cuts reversed that, targeting middle class and lower income individuals and businesses, while raising the taxes on the top 1.5% of earners, and increasing taxes on larger businesses. This shifted the tax burden off the poor back to the wealthy, and that's a huge part of why the economy (as predicted) began growing so quickly. Smaller investors and individuals found it suddenly more profitable to invest in new businesses or smaller businesses, because larger businesses could not compete as unfairly anymore--the tax increases lowered their marginal profitability. That's when the economy took off during the 90s, and that's when the deficit began to shrink.

Bush of course reversed Clinton's tax structure, when it should have been tilted further towards the lower incomes, as Gore wanted it to be. And it had the predictable negative effects.

There were other factors, of course, like Clinton's investment in the infrastructure and jobs, versus Bush's "investment" in war and other non-revenue ventures.

I agree with what you said about Obama. His early economic legislation did some good, but had too much supply-sided ideology mixed in, and not nearly enough investment, and now, when we really need to be putting people to work by investing in rebuilding, he's burying his talents, so to speak. He's not doing enough. On the other hand, he's done some of the right things, and his vow to let the wealthy tax cuts expire while renewing those for middle and lower classes (which is where actual growth comes from) is the right idea. The recovery would be better served and more certain with a more aggressive mentality, but it's better than more tax cuts for the wealthy and voodoo prayers that they will somehow trickle down this time.

[JDPriestly]

27. Thanks. I learned a lot from your post.

With regard to the Clinton boom.

I decided that a crash was on its way back in 1997 when I went saw a group of people in my very demanding profession -- in a situation in which they were supposed to be working -- trading stock tips.

Of course, as we know, Clinton signed the law that got rid of Glass Steagall. A lot of our economic downturn is blamed on that change. I'm not well enough informed about that to really know. I suspect that those who wanted to circumvent Glass Steagall would find a way to do it even if it took buying someone off.

Wall Street understands money. That's why increasing taxes on the income they receive from risky behavior would work.

[Spazito]

11. Excellent response!

:thumbsup:

Recommended.

[county worker]

16. "Our government represents the majority will of the people."

No it doesn't. If that were true there never would have been a civil rights bill. Our government represents the actions of those running the government at any place and time.

Also you benefit by the trucking company having the use of highways so the things you buy can be transported to you.

I think the wealthy should pay higher taxes because they can. A distribution of wealth equitably is good for the country. Right now wealth is being taken from the middle class and transferred to the wealthy by the current tax code and the laws on the books.

[madinmaryland]

19. K&R! Thank you for this timely reminder.

[daylan b]

21. Why do people focus on the marginal tax rate?

It's capital gains where the truly wealthy hide their income from higher taxation.

The fact that people obsess over increasing the tax rate for actual earned income and seemingly ignore the abysmally low 15% capital gains rate on passive income has always been a bit ironic to me.

Of course, you'll never hear a politician talk about this. Focusing on the marginal tax rate is their way to keep the attention off of the taxes that would truly impact the wealthy. It lets you look like you're a populist while giving a wink and a nod to those who own you.

[JDPriestly]

28. You have a good point.

I don't think about the capital gains taxes as much because I would only have enough capital gains to be taxed if I sold my house. And under current law, I wouldn't even pay capital gains if I did that because my house is not worth enough.

I'm wondering how much CEOs pay in capital gains taxes on the stock they receive as part of their pay packages. Do you know anything about that?

I thought of another reason we don't think about it. We look at the tax forms when we fill out our returns. That's about the only time that we think about taxes. We just read about what applies to us and ignore the rest. So we don't think about capital gains.

[mhatrw]

32. Here you go.

http://www.marketwatch.com/story/the-recession-is-over-the-rich-won-2010-07-20

According to consultants Cap Gemini, the wealthy saw their net worth bounce back sharply last year. And while those with $1 million or more did pretty well, the real story was the boom among the ultra rich: Those with more than $30 million to invest. "Ultra-HNWIs (High Net Worth Individuals) increased their wealth by a striking 21.5% in 2009, far more than the average in the HNWI segment as a whole," Cap Gemini reported, adding: "A disproportionate amount of wealth remained concentrated in the hands of Ultra-HNWIs."

There are fewer than 100,000 ultras around the world. A third of those are here in the U.S. Ultras make up 1% of the high net worth, according to Cap Gemini, but held 36% of the high net worth's wealth. ...

And who pays the top rate anyway? Right now it only kicks in on each dollar of ordinary income over $374,000 a year. A recent study by the Congressional Budget Office found that the top 1% of Americans paid an average federal income tax rate of just 19% in 2007, the last year when data were available. The top 5% of earners paid an average rate of less than 18%. There are ways and means to minimize tax -- like calling your income "capital gains." That's what private equity honchos do, where possible. In many cases, it means people making tens of millions a year are paying lower tax rates than their chauffeurs and receptionists. (There are proposals to change that, with predictable screaming). As for socialism: The Federal Reserve reports that the private sector is doing so badly that corporate profits just, um, rocketed to a new record high. The after-tax profits of corporate America rocketed 43% in the first quarter. ...

And according to an analysis by the Central Intelligence Agency, the U.S. has one of the most unequal income distributions in the world. In this field, most of the developed world is pretty much in line -- Japan, Italy, Australia, Canada, Norway, Great Britain. Some are more unequal than others, but all are comparable. In each case, of course, the rich make more than the middle class, sometimes a lot more. But they generally occupy the same economy. The U.S.? Our income distribution is more in line with Zimbabwe, Argentina, and El Salvador. We think of Russia as the land of oligarchs, but America's inequality is actually slightly greater than Russia's.

[daylan b]

35. They pay 15%.

Whish is the true absurdity of our tax system, not income tax.

[mhatrw]

31. Exactly.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x8803791

[jtuck004]

22. Well said n/t

[Ignis]

29. K&R

:kick:

[mhatrw]

30. In countries without decent govenments, the richest citizens are called warlords.

Imagine how much money our rich save not having to hire a private army to protect their wealth.

Who benefits the most from the free congress of society that government provides?

The richer you are, the more you benefit from government. It's as simple as that.

[DeeDeeNY]

33. My short answer to the question is

if wealthy people don't pay more taxes, then people making a lot less will have to bear more of a tax burden. Is that fair?