Today I finally figured out the main problem with the idea that a tax on the rich would solve all of America’s fiscal problems. The best way for a politician to stay in power is to hand out money to cronies, e.g., $150,000 per year pensions to unionized government workers or $400 million per aircraft to a defense contractor. The only limit to government spending, therefore, would be some sort of a limit on a politician’s desire to obtain and retain power. Our government needs to raise taxes right now because it has greatly outspent its revenue at current tax rates. Raising tax rates, especially on the rich, therefore seems like a very attractive idea, at least to some of the 99 percent.
Why would any of the 99 percent oppose a big tax on the 1 percent? Perhaps they think that the government will eventually outspend this new revenue source and then start coming after the non-rich.
Gee, I guess you never, ever heard of the term “robber barons” then, or have you? If conservatives really meant what they say they stand for (i.e., conservation of our nation and its resources), then why do they want so eagerly to continue the raping of our environment (Drill, Bay, drill) while pretending that “science” is wrong about climate warming? You’ve achieved whatever measure of success you now enjoy on the backs of hard working citizens who may not share your elitist views, so perhaps your fear of someone who exhibits compassion for those who are not so fortunate as you strikes fear in your being. That’s too bad and if taking a few more dollars from those who are so fortunate means they have to postpone buying the new Mercedes S500 does not strike a sympathetic chord with me. Sorry ’bout that.
Since you didn’t back that one up with any statistics, it’s just a hunch. So here are some of mine:
“When I get rich, I wouldn’t want to be taxed that much” <- Hate to break it to Joe the plumber that chances are he won't get rich.
"If we tax them that much, they won't invest and hire me." <- completely ignoring said investment would be an expense and not taxed. Not to mention they are not hiring or investing right now anyway. With high taxes, the choice is: either invest and don't pay taxes on that million (at the risk of the investment being dud) or knowing for sure the government will turn the million into $400K overnight. Which would you choose?
(And by investing, I don't mean buying publicly traded shares with your disposable income, that's not investing. Investing is not paying yourself so much out of your company and instead using the money to invest in new products and markets.)
The federal government has never managed to collect much more than about 20% of GDP in taxes (see chart here: http://www.project.org/info.php?recordID=151 ). That’s over a period that contains a pretty wide variation in top tax rates. Looking at that chart, one suspects the real reason why we don’t just raise top tax rates is that we won’t collect more revenue by doing so. We didn’t before, and probably wouldn’t again. In the long run, people adapt to higher tax rates by (a) leaving the country (eg: the Beatles and the Rolling Stones left England) (b) structuring their affairs in a more convoluted fashion to avoid tax using any existing loopholes, (c) lobbying for – and getting! – brand new loopholes to avoid tax under, (d) starting businesses in other countries rather than here, (e) doing more business “off the books”. So higher rates don’t in the long run produce more income anywhere near in proportion to the expected increase or the amount of harm they do to the economy as a whole.
When top tax rates were much higher in the 1970s/early 1980s, there were more loopholes under which one could hide income – we got rid of those at the same time as we cut the rates.
Concrete personal example: my family had the use of two cars in the early ’80s but “owned” none – they were both “company cars”. Prior to 1986, letting your employees have the “spare-time” use of a “company car” that allegedly had been bought for other purposes turned taxable income to the employees into a deductible business expense for the company.
It would be great if tax revenue was used in efficient and productive ways. Usually, it isn’t, and just goes to fund cronyism and pet projects like Solyndra. The 99%-ers like to complain about student loans and the bank bailout, but those problems were created in the first place by government manipulation of the markets.
The exploitation of the weak by the strong is a perennial problem in human society. “Hardcore” Marxism such as the Soviet Union didn’t solve it, and neither did the European socialist welfare state. I don’t think it’s something that can be legislated away, as that usually just creates a whole other set of different problems.
For example, if you ban oil drilling, then you’re going to pay more for oil (and possibly support dictatorships like Saudi Arabia in the process). Then people will be complaining about the high price of oil, and why can’t the government do something about that.
The situation, according to the book of Genesis, is, “By the sweat of your face You will eat bread, Till you return to the ground, Because from it you were taken; For you are dust, And to dust you shall return.” I would venture that attempting to avoid such brute facts of human existence through state coercion inevitably creates more problems than it solves.
Jim: Your little misguided and incoherent tantrum is pretty much exactly what’s wrong with the modern leftist movement, including the Occupy movements. It’s not that you’re wrong that the rich can certainly afford to pay more and that nobody should shed a tear for them, it’s that the question is whether or not it’s really going to help us and if it’s good for government to be virtually entirely paid for by a small minority of people. Or, for that matter, how taking from A to give to B really makes up for whatever inequities between A and B that led to the income disparity. Has it ever occured to you inbetween rants that the Democrat politicians who so “benevolently” propose more taxes on the rich are quite happy with a situation where there is a constant supply of people on the bottom who are dependent on the government for subsistence? Has it ever occurred to you that were the liberal Politicians truly successful with their ostensible goals of bringing equality, they would put themselves out of jobs? It’s not that I’m apologizing for the morons on the right side of the aisle, I just think it’s important to point out that the people you’re breathlessly endorsing are complete and utter disingenuous morons, too. Like many on the shambles of what’s left of the Left these days, your position is based almost entirely on anger and envy, and not much logic or reason. Or principled desire for true justice, for that matter. Because if you really cared about justice, you’d worry more about fixing the problems in our country that have been caused by both the Right (e.g. crony capitalism and corporate welfare) and the Left (union excesses, over-regulation and unsustainable entitlement systems), and less interested in parroting Democratic party talking points.
Bas:
I’m sympathetic to your arguments, and you may be right. But to be fair, you’re making a strawman out of the other side’s arguments. Nobody is going to voluntarily give up their salary so their company can invest more in the way you suggest. Most people don’t own the companies they work for, so your argument applies in only a tiny percentage of cases. So it really is a question, in most cases, between “what will the government do versus what will the rich dude do?” One side argues the government will invest that money more wisely and to greater long term benefit to society than the rich guy. Honestly, I can see problems with both arguments, because I’ve met both rich people and government workers. Frankly, I’d rather have a society where we don’t have to ask stupid questions like this, and income is more fairly distributed without politicians having to get involved.
@Bas wrote: “investment would be an expense and not taxed”
Do you own a company? Do you provide jobs for anyone else? Do you understand the real tax implications of what you’re talking about?
I’m always amazed how eagerly others wish to spend the profits of the investors/owners/entrepreneurs. How is their take home pay any different than your salary? Other than much of their income is at-risk?
Would it not be just as correct to say, “There’s no reason to let you take most of your paycheck home; you’ll just spend it on electronics and restaurant food. Let’s raise taxes and let the government be a better shepherd of the money. They can invest it more wisely and produce better results.”
The real answer: Dramatically cut spending and move to a Fair Tax-like system. Tax spending not profit.
Philip wrote a great article on many of these issues back in 2008: http://philip.greenspun.com/politics/economic-recovery
@Dave: “Do you own a company? Do you provide jobs for anyone else? Do you understand the real tax implications of what you’re talking about?”
Yes, yes, and yes.
While it seems fair, it is ultimately self-destructive for society to allow a small percentage of individuals to hoard all the loot and thus not in their long-term interest either. And we elect governments to protect us from imploding societies.
But the rich can still get richer than anyone else without sacrificing the bottom end, with more balanced policies, even with some of the lowest taxes in the world:
http://blogs.crikey.com.au/pollytics/2011/12/08/australian-exceptionalism/
@Jonathan: You may be correct, I have no idea what percentage of the “1%” are company owners. Still, I am firm believer higher tax brackets for higher incomes lead to fairer and more stable societies.
“Do you own a company? Do you provide jobs for anyone else? Do you understand the real tax implications of what you’re talking about?”
Actually it seems pretty clear that he does, and you do not.
“…it’s that the question is whether or not it’s really going to help us and if it’s good for government to be virtually entirely paid for by a small minority of people.”
Oh give it a rest. To a first approximation at this point the federal government is a giant insurance company, with a side business in fighting wars. The insurance part is paid for by the most regressive taxes imaginable. The rich, in fact, pay not a dollar more than the middle class does, as FICA taxes cut off completely at something around $110K. Then there is the fact that our government exists on multiple levels, and much state an d local spending is paid for by sales tax, which is also regressive.
Even as I meet people on the street who complain about oil prices, a quick wikipedia search shows that those prices are barely at 19th century levels (adjusted for inflation!). They will also complain about income inequality, but buy a lottery ticket before filling up their tank!
It is amazing how these same people will advocate for more govt to get those price gouging capitalists, while never questioning whether their govt is price gouging by consuming >40% of GDP spending compared to less than 5% in the 19th century. Even an education (subsidized by the govt) cost an incredible amount now. But wikipedia has made an encyclopedia practically free and the price of computers is as low as ever. So much for the corporations scamming us…looks like it’s the govt getting us.
The movement to tax the 1% is a dumb idea. Like Phil said, the politicians, even if they could get their hands on that tax money, would just spend it all and go after the middle class the following year.
We should think of taxes more like punishment. Kind of like cigarette taxes. What kind of activity would we like to punish the most? Capital gains taxes punish investment. Corporate taxes punish those trying to build companies. Income taxes punish those trying to increase income. Why not just punish spending, it seems more fair and gives us all a direct sense of how big the govt has really become, right at the register! Plus, if we wanted to reduce those carbon emissions, just tax everyone’s materialism even more….
You have put ypur finger on one of the great mysteries of US politics. Namely, why so many people who will never be rich insist on voting for politicians and measures that benefit the rich – at their own expense.
I put it down, provisionally until a better explanation comes along, to the great perfection attained by the US PR and marketing industries. They have actually persuaded people who will never be rich – or even comfortably well off – that one day they too might be billionaires. It’s like the idea that anyone can become president.
[snort] THINK that “the government will eventually outspend this new revenue source”? It already has! Federal spending has been doubling every 12 years or so for DECADES, while GDP growth has been much slower than that, and can’t possibly catch up. Obviously, we have a runaway spending problem, and minor additional sources of revenue aren’t going to solve that. What we need is massive spending cuts plus massive deregulation and simplification. The spending is the central problem, but cutting down on the absurd libraries-full of commerce-deadening regulations would likely spur prosperity in and of itself.
Tom: I have heard your explanation (essentially that tens of millions of Americans are incredibly stupid and think that they can rise from selling tires to making $billions) and it doesn’t seem plausible. Even people with average IQs are usually able to perceive their financial self-interest. So I want some kind of explanation for why it might be in an average earner’s interest not to impose, say, a 90 percent tax on high incomes.
> So I want some kind of explanation for why it might be in an average earner’s interest not to impose, say, a 90 percent tax on high incomes.
Did you miss mine? In essence: 90% is almost certainly on the wrong side of the Laffer Curve. When countries tax that much: people leave, restructure their affairs in weird ways that waste most of their gains, abandon what would otherwise be profitable investments, start operating on the black market, and spend a lot of money they would otherwise have to pay in taxes bribing congress to add more loopholes.
“The New Palgrave Dictionary of Economics reports that estimates of revenue-maximizing tax rates have varied widely, with a mid-range of around 70%”
(see: http://en.wikipedia.org/wiki/Laffer_curve )
So if all you care about is maximizing government revenue in the short term, perhaps you should be arguing for a 70% tax. 90% is a non-starter – it imposes costs with no offsetting benefits.
philg: “I want some kind of explanation for why it might be in an average earner’s interest not to impose, say, a 90 percent tax on high incomes.”
A 90 percent tax would violate fairness norms. But what about less drastic increases?
If you look at polls, though, 68% of Americans support reducing the deficit by raising taxes on incomes of $250,000 or more. In fact, the Wall Street Journal reported recently that if you survey millionaire investors, the proportion who support raising taxes on their own income bracket is … also 68%.
It’s the obvious solution. Cutting spending will only go so far (the US is going to have to spend more money on Medicare as the population ages), and most of the income growth in recent decades has gone to the top, so that’s where the money is.
Lots of people here saying the government is wasteful. They are.
But how is a less wasteful government going to fix the situation that the only way average Joe can grow the economy by buying stuff is if they first borrow the money from the same people they buy the stuff from?
Phil: by the time the Rolling Stones left England, they were being taxed at 98%. So a lot of English lawmakers must have thought it was in the interest of society.
The argument presented by some people here that if you raise taxes capital would go away is naive at best. For several reasons.
First, even an increase of taxes to 90% would still be negligible when compared with the much higher returns an investor would expect, e.g. when founding a company. (A real investor, not a financial-engineer parasite.)
Second, where would they go? To Europe, where taxation levels are even higher? To China? Some island in the Caribbean? While there are abundant examples of rock-star or sportsmen leaving to Monaco or other places, it is just not realistic to expect a mass exodus of rich people and their families leaving the US (0.1% is still more than 300,000 people!) and happily adapting to life in communist China (Monaco, with less than 40,000 people, would not be sufficient). Hopefully the EU will start closing the plugs on fiscal havens and limit the options for rich people to escape elsewhere.
Finally, Norway, one of the countries with the highest tax rates in the world must be really full of poor people. Because all the rich would have already left. It also suffers from a harsh climate, so if there are any rich people there they are probably very stupid, no?
Another reason taxing the 1% is a bad idea is that there’s not *that* much revenue to be had…
http://www.american.com/archive/2011/august/obamasfollytaxingtherich
http://super-economy.blogspot.com/2011/04/doing-math-president-obamas-plan-to-tax.html
joecanuck: $0.7 trillion (the number cited by Tino Sanandaji in your links) is a pretty huge amount of money! It’s not going to close the deficit on its own, of course, but it’s a significant chunk. If you tried to raise the same amount of money by taxing everyone in the United States, you’d need to collect $2300 from everyone.
Tiago: they could move to Canada, of course. The top marginal tax rate on labor income in Ontario is 46%. Even in continental Europe, the top marginal tax rates on labor income are only about 60% – not 90%.
No, it is not in the average earners interest to tax high incomes at 90%. That would be patently stupid. It may disincentivize capital creation and it will certainly incentivize massive tax evasion and capital flight from the country.
Yes, it is in the average earners interest to tax high incomes in general. Considering a major source of income for the top 1% is capital gains (be that may be from accumulated wealth passed down generation to generation or financial windfalls from taking a company public to top executive pay in option or stock grants) , capital gains above a certain amount (so as not to hit small investors) should be taxed at the current income tax rate (which should stay progressive).
Tiago: I’m not sure that you’re reading carefully. I didn’t write anything about the Rolling Stones. I have in the past written about U2 and their tax-avoidance methods. Separately, you’re wondering about Norway? http://en.wikipedia.org/wiki/Tax_rates_around_the_world indicates that they have a corporate tax rate that is much smaller than the U.S.’s and a top income tax rate that is pretty similar (remember that we pay both federal and state income tax, so total top rate can be close to 45%).
Anyway, it doesn’t make sense to compare the U.S. to Norway. Norway is full of Norwegians. On average they might be smarter, better educated, and harder working than we are. Their superior wealth may have nothing to do with their form of government or the policies of that government.
Phil, if you believe every politician wants bigger government and higher taxes because it allows them to keep their jobs, how do you explain the stand of the Republican politicians? I’d think your assertions would apply to tax-and-spend Democrat politicians only.
Murali: How to explain Republicans? Maybe stop listening to what they say and look at what they do. For example, Republicans wanted to keep getting elected in San Diego so they promised generous pensions for public employees that future taxpayers would have to pay for (see http://en.wikipedia.org/wiki/San_Diego_pension_scandal ). We have set up a system where the surest way for a politician to get re-elected is by bankrupting the future and any professional politician, of whatever party, is going to be tempted to take that sure path.
“When I get rich, I wouldn’t want to be taxed that much” <- Hate to break it to Joe the plumber that chances are he won't get rich.
How about the simpler “I don’t think it’s okay to take something from someone else and give it to me”?
It’s a pretty common moral tool: before doing something to someone else, imagine yourself in their shoes and how you would like it. You can get most kids to think racism sucks by this method, even if they are of the preferred race and it would be in their “self-interest” to be for it.
Dan: I think most people regard Social Security and Medicare as just rather than unjust. It amounts to a choice to support the elderly through the government, rather than relying on one’s children; prior to the introduction of Social Security, poverty among the elderly was a huge problem.
The basic argument for the fairness of progressive taxation goes back to Roman times. Dionysius Halicarnassus, 12 B.C.: “It is very just, I think, and very much to the public good, that such as have large fortunes should pay largely, and such as have less in proportion.”
Having the rich pay higher taxes certainly seems fairer than borrowing the money from future generations, who have no say in the matter. The US can’t run a deficit indefinitely.
The current US tax system isn’t very progressive. A detailed analysis by Piketty and Saez shows that for the top 1%, their share of pre-tax income in 2004 was 20%, and their share of post-tax income was 17%.
That polemic had very little to do with what I said.
The original question was “why would any of the 99 percent oppose a big tax on the 1 percent?” I’m giving a theory that well explains the behavior of much of that 99% who, to date, still haven’t ganged up and taken everything from the 1%.
They may well accept some level of progressiveness in the tax system; that doesn’t mean they accept any level of progressiveness in the tax system.
The current US tax system isn’t very progressive. A detailed analysis by Piketty and Saez shows that for the top 1%, their share of pre-tax income in 2004 was 20%, and their share of post-tax income was 17%.
The second sentence doesn’t explain the first. It seems to run opposite to it, since after taxes the 1% has a smaller share of the income than before it.
I think it’s important to remind that nobody with a lick of sense believes or proposes, “that a tax on the rich would solve all of America’s fiscal problems.” The massive wealth and income skews are merely among the most obvious measures that addresses some of the most visibly egregious market failures of recent decades, that’s all.
The post-industrial, post-information, post-PC economies require countless structural reforms if we’re to adapt to the accelerating change ahead. I’m still surprised that so many super smart people seem to conceptualize the foundations of the 22nd century (as we’re establishing, right now) in the context of 19th century norms.
We’re in completely uncharted territory and yet many wave about maps of the past two centuries, insisting they’ve found the way forward. 2011’s mainstream narrative is almost completely divorced from empirical reality, though #occupy is helping break through the fog.
The fact of http://j.mp/The54Percent alone is sufficient to justify full scale http://j.mp/WarOnPoverty yet, all we hear talking heads yammering on about are the same old superficial, fractional measures.
On top of all that, the mainstream narrative actually manages to convince millions of the most gullible and vulnerable that unemployment is a government failure, when it is, by definition, a market performance metric; a market that isn’t creating jobs, a market that is failing, and market that never takes accountability for it’s failings.
Blaming everyone else for one’s problems is a classic symptom of all addicts, gamblers, liars, and thieves. Such is the nature of obviated 19th Century American Industrial Capitalism in 2011.
All that said, I AM AN OPTIMIST. What happens next is a widespread gradual realization of mathematical facts, a collective removal of the blinders that finally enables advanced society to http://j.mp/BreakTheJobTrance and move into the promise of the postscarcity era ahead. New physics. New era. New world game.
Dan: I was responding to your statement that it’s unjust to take money from one person and give it to someone else. Again, Social Security and Medicare work on this basis.
Do the views of the 99% really require explaining? As I noted earlier, recent polls show that a large majority of Americans (68%) support raising taxes on income over $250,000.
Or are you talking about the fact that 100% of Republicans in Congress are opposed to any tax increases on the rich? (They don’t seem to have as much of a problem with tax increases on everyone else.)
The Piketty and Saez analysis shows that the US tax system is modestly progressive: it isprogressive, but it’s not very progressive. There’s not much difference between the before-tax and after-tax share of the top 1%.
What we need is more JOBS, not more taxes. If you tax the people who supply jobs, where will the jobs come from?
Most of my friends own their businesses. A few of us more than one business. The ones who have lost their companies haven’t just lost their companies, they have helped lose many jobs.
Last week at a football game, 3 of my friends and I were counting how many jobs have been lost due to friends losing their companies. We have had 9 friends lose their companies in the past year with a total loss of 652 jobs.
That is the real problem my friend. If you start taxing the people who create jobs while we need jobs, you are creating a bigger problem.
I have two more friends that their companies are losing money every month for the past 2 years. They keep infusing their companies with more cash. They have kept their companies going because they’re hoping that the economy turns around. Create more of a burden I can see their companies folding and more jobs loss.
I think most people are missing the point.
The problem is not the size of the deficit, nor is it the size of medicare, social security, or the defense budget.
The problem is that we have a government that cannot make decisions in a rational manner – and by “rational”, I mean “in the best interests of the country as a whole”.
For example:
* When we finally, due to hard work and good economic luck, achieve a budget surplus, instead of staying the course and using that surplus to pay down the debt, we instead cut taxes and pump more money into an economy that is already hot.
* We decide on dubious intelligence to invade Iraq and commit on the order of a trillion dollars to the project. We don’t bother to budget for it.
* We repeal regulations put in place after the great depression (glass-steagall), then when it comes back to bite us, we don’t reinstate those regulations.
* After a huge financial crisis, instead of throwing those responsible in jail, we instead lend them huge amounts of money at 0% interest, which they then turn around and lend, raking in huge profits.
I could go on with more examples:
All of these make perfect sense if you view them from the perspective of the politicians, the bankers, and perhaps (as Eisenhower said), the “military-industrial complex”.
And much of what passes for political discussion in this country is misdirection, designed to keep people from noticing the sorts of things that I were listed. If you are paying attention to the recent discussion, you notice that the focus shifted off of wall street and off towards a more generic “1%” discussion. That is not a coincidence.
The fact is that we are all going to have to pay more taxes; the demographics simply won’t allow us to continue.
The biggest area where we need higher tax rates is on corporations. This is for simple economic reasons; if you have high corporate tax rates it makes it more attractive for companies to invest their money to grow the business, rather than just giving it out in dividends, where most of it would go to tax.
To take a somewhat extreme example, back in the early 1950s, Boeing had a problem. They had been making a lot of money from military projects, and stood to pay a windfall tax (86% IIRC) on those profits. Instead, Bill Allen decided that they would build the Dash-80, which later became the Boeing 707. From a stockholder wealth perspective, it made sense to invest the money.