Tax Rates

[DaytonIllini]

An interesting anecdote.

We are instituting an electronic medical record (EMR) for our practice. To do this we needed to use several employees to become champions of the implementation. They had to put in a lot of extra time (paid). As a reward for a job well done, we chose to give 3 different employees $5K bonuses. They were given during a single pay period.

Thru a fluke in our payroll software, the employees who average about $2K per pay period (26 periods) receiving $7K were assumed to be making $7K per pay period or $182K. All three were single and that puts them in one of the higher tax brackets. Their withholding was adjusted accordingly.

Each of the employees came and complained about their withholding. Each independently said the same thing. With that much being taken out of their paycheck, it was not worth doing the extra work.

I thought that this anecdote was telling. 3 people making about 50K a year being subjected to a higher but not the highest tax bracket felt that it was not worth working harder to get more income because of the taxes.

[DaFamousPurpleSuit]

That is the major flaw with withholding tables. Also one time lumpsum payments are required to be withheld at the higher rate which is 35% now, could go back to 39% if the Dems get their way.

I guess the best way to explain it is that they simply had thier withholdings increased that one time, and they will get it back in "April" or whenever they file in 2011. If that is any solace.

[DaytonIllini]

Originally Posted by DaFamousPurpleSuit

That is the major flaw with withholding tables. Also one time lumpsum payments are required to be withheld at the higher rate which is 35% now, could go back to 39% if the Dems get their way.

I guess the best way to explain it is that they simply had thier withholdings increased that one time, and they will get it back in "April" or whenever they file in 2011. If that is any solace.

Yes. That is what I told them. They were fine with that but I think it gives the lie to the Democratic saw that higher taxes don't inhibit economic behavior - even in these relatively un-rich people.

[DaFamousPurpleSuit]

You are right... higher taxes put a damper on people... especially when you see the government wasting taxpayer money hand over fist. If the government was fiscally prudent, and we were seeing huge deficits, I would be willing to bet that people would be more receptive to an increase in taxes. The country is more patriotic than people on both sides give it credit for.

In times of need this country pulls together like no other in the world. We are the most charitable nation out there, and are often led holding the bag when more support is needed.

I could go on and on, but I better stop here before I post my own Manifest Destiny....

[mb409]

Can they change their withholding temporarily to minimize the amount taken out of their remaining paychecks for the rest of the year? I'm not in HR, so I don't know what is legal, but it would seem to be reasonable.

[DaFamousPurpleSuit]

You can always change your withholding, but you often have to get it in a couple of cylces ahead of time, then you have to be diligent enough to change it back so you keep your normal withholdings.

[illinirazorback]

Do you think this crazy man and his hateful speech would be welcome in today's Democrat Party?

[Illi0105]

Originally Posted by illinirazorback

Do you think this crazy man and his hateful speech would be welcome in today's Democrat Party?

I am sure he would be. The top marginal tax rate when he gave that speech was 91%. There's a happy medium somewhere between 0 and 91%.

[DaytonIllini]

Originally Posted by Illi0105

I am sure he would be. The top marginal tax rate when he gave that speech was 91%. There's a happy medium somewhere between 0 and 91%.

Yes. Around 0% would be a very happy medium. Couple that with a consumption tax of around 24% on everything and you have a nice, fair system. You also have one that is less impacted by recessions than the current system.

[illinirazorback]

Originally Posted by Illi0105

I am sure he would be. The top marginal tax rate when he gave that speech was 91%. There's a happy medium somewhere between 0 and 91%.

Guess I don't see your point. Reagan talked like that and cut the top rate from 70% to like 31%, and he was crazy... :rolleyes: Giving that speech, no, he would be shunned from the party today because he sounds like a Tea Partier.

So in effect you're saying that his speech is totally invalid at today's tax rates? Cutting taxes will not spur private industry growth? I'm curious to hear your reasoning on that.

[illinirazorback]

Originally Posted by DaytonIllini

Yes. Around 0% would be a very happy medium. Couple that with a consumption tax of around 24% on everything and you have a nice, fair system. You also have one that is less impacted by recessions than the current system.

That's just crazy talk. You sound like that crazy Mike Huckabee. What a moron. :rolleyes:

[Illi0105]

Originally Posted by DaytonIllini

Yes. Around 0% would be a very happy medium. Couple that with a consumption tax of around 24% on everything and you have a nice, fair system. You also have one that is less impacted by recessions than the current system.

Unfortunately, there are too many vested interests in our current 16,000 plus pages of tax code that there will never be any meaningful change.

[Illi0105]

Originally Posted by illinirazorback

Guess I don't see your point. Reagan talked like that and cut the top rate from 70% to like 31%, and he was crazy... :rolleyes: Giving that speech, no, he would be shunned from the party today because he sounds like a Tea Partier.

So in effect you're saying that his speech is totally invalid at today's tax rates? Cutting taxes will not spur private industry growth? I'm curious to hear your reasoning on that.

My point is that he wouldn't be shunned by today's Democrats for making that speech. I am sure the majority of Democrats know that cutting taxes creates investment, growth and jobs. That's one of the reasons that there were a good deal of tax cuts in the stimulus.

To your point about Regan - he did drastically cut the top marginal rate. He also then raised it because of the size of the resulting deficit. George H W Bush raised them as well. As I said to Dayton, unless drastic changes are made and entrenched tax systems are revised, the only responsible thing to do is find a mid point between high taxes and a high deficit and a highest marginal rate that balances revenue while not hindering growth.

I agree that in general cutting taxes will spur private industry growth. However, I don't agree that cutting taxes alone will solve all our current economic problems.

[IntenselyOrange]

Originally Posted by DaytonIllini

Yes. Around 0% would be a very happy medium. Couple that with a consumption tax of around 24% on everything and you have a nice, fair system. You also have one that is less impacted by recessions than the current system.

Can you point me to something that explains how that is recession proof? Logically it just doesn't make sense to me.

[DaFamousPurpleSuit]

Originally Posted by Illi0105

Unfortunately, there are too many vested interests in our current 16,000 plus pages of tax code that there will never be any meaningful change.

This is true. Until we stop using the tax code to reward special interests no real change can happen.

I want to say this though... the Congress is not talking about cutting t axes. All they are talking about is keeping the tax structure at the same levels is has been at for nearly 10 years. If Congress could have done so, the rates would have been made permanent, but they could not...

I think a 4 year extension is what is needed. 2 years is not enough time to get everything humming again. The problem we are facing are massive deficits that we can no longer sustain. Massive reform to SS and Medicare are needed, and that is where the tax increase will probably come from. It will not be a rate increase however an increase of the floor, which is going to hamper small businesses as they will have to pay 6.2% on the additional earners as well. They need to increase the retirement age to 75 for those under 40 and for people 40-55, it goes to 70. But the major reform that needs to happen... no longer use the SS funds to fund other areas. This is similar to a temporarily restricted asset, in that it has a restriction on its use, however the governemnt writes the accounting rules so I guess they can break them as well....

[DaytonIllini]

Originally Posted by IntenselyOrange

Can you point me to something that explains how that is recession proof? Logically it just doesn't make sense to me.

Whoa cowboy. "Less impacted by recessions" does not equate to "recession proof".

Studies have shown that consumption is less impacted than income during economic turndowns. I don't have it handy and will need to dig. Perhaps someone has the stats on hand?

[DaytonIllini]

I thought that this was interesting reading. There is usually a progressive or liberalista spouting about how the wealthy don't pay their fair share and don't work hard like 'working people' - gag. Or that most wealthy people inherited their money and did little to earn it.

Apparently most rich people earned their money.

roughly 80 percent of millionaires in America are the first generation of their family to be rich

Apparently rich people tend to work more hours than the poor (does that really surprise anyone?).

the number of men in the bottom fifth of the income ladder who work more than 49 hours per week has dropped by half since 1980. But among the top fifth of earners, work weeks in excess of 49 hours have increased by 80 percent. Dalton Conley, chairman of NYU's sociology department, concludes that "higher-income folks work more hours than lower-wage earners do."

Research by Nobel Prize–winning psychologist Daniel Kahneman showed that those earning more than $100,000 per year spent on average less than 20 percent of their time on leisure activities, compared with more than a third of their time for people who earned less than $20,000 per year. Kahneman concluded that "being wealthy is often a powerful predictor that people spend less time doing pleasurable things and more time doing compulsory things."

The rich pay a disproportionate amount of their income in income taxes.

The richest 1 percent of Americans earn 20 percent of all income in America but pay 38 percent of income taxes. The top 5 percent earn slightly more than one-third of U.S. income while paying nearly 59 percent of income taxes.

But here comes the, "but what about excise taxes and payroll taxes", argument.

even if you include all types of federal, state, and local taxes, the wealthy pay a higher proportion of taxes than their share of income would warrant.

Well data shows that the rich don't give as much to charity.
Uhh, bull.

Households with more than $1 million in income make half of all charitable donations in this country. That totaled more than $150 billion last year.

Well, poor people spend their money so giving them a tax break is better for the economy!

Uhh, no...

that money not spent by the rich is not simply stuffed under millionaires' mattresses. The savings of the rich provides the investment capital that funds new ventures, creates new jobs, and spurs innovation. The money that the rich save and invest is the money that companies use to start or expand businesses, buy machinery and other physical capital, or hire workers.

Sure giving a guy making $20K a year $20 is going to entice him to spend $20 and run the economy. Convincing a guy making $1M a year to invest $200K in the economy to create jobs and develop new industries that either lower costs for everyone or stimulate long term domestic growth requires an entirely different mindset.

http://www.cato.org/pub_display.php?pub_id=12637

[Illest]

Absolutely, the wealthy today earned their money more than in the past. See the attached graph (from research by Emmanuel Saez) to see how much the super-wealthy are wealthy because of business/salary income relative to how dependent they'd been on capital gains in the past.

There are a few reasons why this graph looks like it does, but the primary reason is what I described in the thread on education: There is increasing demand for skilled workers in an advanced economy that has not been matched by an increasing supply of skilled workers. Economics 101, wages go up for the skilled but not for the unskilled. Not surprisingly, this also means that skilled workers end up working longer hours than before, which is reflected in the fact that, as you point out, the wealthy are now working longer hours than the poor (it was the other way around until quite recently*).

You comment that, even when you account for all taxes, wealthy people pay more than their share. That is to say, they pay a higher percentage of their income in taxes than do middle class and poor people. This is true, but the difference is mild:



As for the benefits from tax breaks for the wealthy, obviously all money ends up somewhere, and all spending or saving has some benefit to the economy. It's just that, for short-term recovery, it appears to be substantially more effective to give tax breaks to people who are having trouble meeting current expenses. Ignoring fairness arguments, the GDP-maximizing choice for stimulus tax cuts is to give them to the working class.

* -- actually, the article misstates the case made by Aguiar and Hurst, who were interested in what people are doing when they're not at work. So their data reflects time spent doing economic activities outside of work, like cooking (as opposed to having someone else cook for you), cleaning (as opposed to having someone else clean for you), etc. So the trends among the wealthy partially just reflect that the wealthy are less likely to employ domestic help now than in the '60s.

[DaytonIllini]

Illest, the key point in your graph is the solid line which is the tax burden by decile. The pink and the blue are easily distracting and suggest a much higher burden for the poor than actually exists.

I have seen that graph panned before. It also ignores all state and local taxes. Those dramatically skew the upper income tax burden. Many states have tax burdens of 7-10.55% for upper income earners. Those same states can have low rates of 1.4%.

http://www.taxfoundation.org/taxdata/show/228.html

City taxes can routinely top 3% or even 4% in some affluent areas.

People living in low tax areas like Illinois have a difficult time comprehending that upper rates on income of 13% are being seen in states and municipalities. These are almost always targeted at the wealthy.

[Illest]

Originally Posted by DaytonIllini

Illest, the key point in your graph is the solid line which is the tax burden by decile. The pink and the blue are easily distracting and suggest a much higher burden for the poor than actually exists.

I wasn't confused. What the graph shows is mildly progressive taxation. People generally agree that wealthy people should pay a somewhat higher fraction of their income in taxes. That's reflected in the graph.

The graph also shows that taxes other than the income tax are, in total, regressive, so that the income tax code needs to be unusually progressive to match what we think is an appropriate pattern of overall taxation. If the income tax were only moderately progressive, the tax code as a whole could be regressive.

By the way, the graph does include state and local taxation.

[ijustkrushalot]

Originally Posted by DaytonIllini

An interesting anecdote.

We are instituting an electronic medical record (EMR) for our practice. To do this we needed to use several employees to become champions of the implementation. They had to put in a lot of extra time (paid). As a reward for a job well done, we chose to give 3 different employees $5K bonuses. They were given during a single pay period.

Thru a fluke in our payroll software, the employees who average about $2K per pay period (26 periods) receiving $7K were assumed to be making $7K per pay period or $182K. All three were single and that puts them in one of the higher tax brackets. Their withholding was adjusted accordingly.

Each of the employees came and complained about their withholding. Each independently said the same thing. With that much being taken out of their paycheck, it was not worth doing the extra work.

I thought that this anecdote was telling. 3 people making about 50K a year being subjected to a higher but not the highest tax bracket felt that it was not worth working harder to get more income because of the taxes.

wait, democrats are responsible for flukes in your payroll software now?

[ijustkrushalot]

Originally Posted by Illest

I wasn't confused. What the graph shows is mildly progressive taxation. People generally agree that wealthy people should pay a somewhat higher fraction of their income in taxes. That's reflected in the graph.

The graph also shows that taxes other than the income tax are, in total, regressive, so that the income tax code needs to be unusually progressive to match what we think is an appropriate pattern of overall taxation. If the income tax were only moderately progressive, the tax code as a whole could be regressive.

By the way, the graph does include state and local taxation.

yup...

what it doesn't show is individual localities, its a generalized table... distribution of tax burden varies from place to place (usually higher income people can buy their way into better schools with a lower tax rate than they'd pay in less affluent school districts, property tax is highly regressive, sales tax and most user fees are a higher burden on low incomes, etc.

[DaytonIllini]

I took the liberty of quibbling with your quote with bolded changes. You don't have a source for the graph but I don't believe that the average tax is only 32% for the top decile. I guess I am not certain where the top decile ends. If it is 100K or so that could be true. Certainly the top 1% pay a much higher rate than what is shown in that crude graph.

Originally Posted by Illest

I wasn't confused. What the graph shows is mildly progressive taxation. Liberals generally agree that wealthy people should pay a somewhat higher fraction of their income in taxes. That's reflected in the graph.

The graph also shows that taxes other than the income tax are, in total, regressive (except for sales tax which is excluded from the graph as well), so that the income tax code needs to be unusually progressive to match what Liberals think is an appropriate pattern of overall taxation. If the income tax were only moderately progressive, the tax code as a whole could be regressive (if you ignored all the other taxes like sales tax and state and local income taxes).

I didn't mean to suggest you were confused. I was. It took me more than a few minutes to decipher that one even though I had seen it complained about on another site I frequented years ago.

BTW, progressives and liberals generally agree that the rich should pay a higher rate. Economic conservatives disagree. In fact that is one of the key differences between the groups IMO. They want a flat tax and some even call it a FAIR tax. It seems logical to me that if I give the government 20 hours of my precious time a week so should the wino on the street corner or the clerk in the office or the superfreak NBA player. What could be more fair?

[DaytonIllini]

Originally Posted by ijustkrushalot

wait, democrats are responsible for flukes in your payroll software now?

Clearly reading comprehension and analytical thinking are no longer stressed at my alma mater. Must be the budget cuts.

[DaytonIllini]

Originally Posted by ijustkrushalot

yup...

what it doesn't show is individual localities, its a generalized table... distribution of tax burden varies from place to place (usually higher income people can buy their way into better schools with a lower tax rate than they'd pay in less affluent school districts, property tax is highly regressive, sales tax and most user fees are a higher burden on low incomes, etc.

Of course property taxes are higher in areas of squalor. Any derelict ridden areas are always run by Democrats whose first, second and third reflex every morning is to steal someone else's money. They will steal it either with a gun or with a vote (followed by the threat of a gun of course).

Democrats rarely can end a sentence without some appeal to steal some more from their fellow man. Naturally they know how to spend money better than the poor deluded souls that actually worked for the money. Look at any inner city and see how well they do with governing. They have no crime and their children are such high achievers. Of course they don't want to admit their utter failure so they make up crap about discrimination and try to create special classes of people with special rights. That would never be called discrimination though. After all their motives are pure (ROFLMAO).

We must spend more on infrastructure.
We must spend more on education.
We must spend more on research.
We must spend more on police.
We must spend more and more and more. Always the spending must increase. Faster and faster.
Let's promise people money for their retirements we cannot possibly afford without stealing even more money in the future.