Income Taxes and what is fair

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ffj
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Post by ffj »

Here's something I've never been able to completely answer for myself and maybe some of you could help me out.
Much is made how in the U.S. the wealthiest Americans actually pay less as a percentage of their income in taxes versus a middle class person with limited income. Warren Buffet likes to point out how his secretary pays more in taxes than he does. Many have called for the wealthy to pay more based on this fact. My question is not whether they should or should not, but the mathematics behind it. A couple of percentage points doesn't mean a tremendous amount to an average wage earner but could be huge to a wealthy person. And by that virtue, do we value the the wealthy person more, because even at a discount, 33% of five million is a helluva lot more than 35% of $40,000. Or do the average wage earners override the monetary difference with sheer quantity of members? Who's more valuable, the guy that pays a million in taxes (albeit discounted), or the 200 people who it would take to pay in the same amount at $5,000 a piece? Hopefully this question makes sense and I appreciate your responses.


Chad
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Post by Chad »

Per AMI, which is a Republican think tank, the top 5% of Americans pay well over half of all income taxes. Of course, this isn't a big surprise given that the top 5% of Americans own 73% (roughly) of all U.S. wealth. It would be almost impossible for them not to pay the most in taxes, because of the vast disparity in wealth.
The wealthy would seem to be more valuable when using taxes as the barometer. Though, their wealth is disproportionate to what they produce.
This kind of imbalance is obviously unsustainable. Just one more piece of our problem.
I would argue that "A couple of percentage points doesn't mean a tremendous amount to an average wage earner but could be huge to a wealthy person", the opposite is true. If you are making $1 million off of dividends every year and have your taxes doubled from the current 15% to 30% you would barely notice going from $850k to $700k. Maybe you buy a Mercedes S-class instead of Maybach, but that's not much of a sacrifice.
It's kind of like the Chris Rock divorce joke. He says, "If you are worth $30 million and she is going to take half, you will be all right. If you are worth $30,000 and she is going to take half, that b@#$% has to die!"


George the original one
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Post by George the original one »

> Who's more valuable, the guy that pays a million in

> taxes (albeit discounted), or the 200 people who it

> would take to pay in the same amount at $5,000

> apiece?
From a systems perspective, the 200 people are more valuable as if one of them croaks, then gov't income is still close to $1M. If the millionaire taxpayer passes, then the income is lost.


jerry
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Post by jerry »

People tend to neglect talking about the total tax picture when talking about fairness. I seldom hear anyone talk about the effects of non income related taxes. Taxes like sales tax and property taxes can boost the total tax rate of the poor and middle class to much higher levels than the rich pay. $5000 (which is a low number for a middle class house in NYS) in local tax on a 30k income is 16%. While a wealthy person might have a house that costs 3 or more times as much, his income could be hundreds of times higher which would add only a trivial amount to his total tax rate.
Democrats use to talk about recessive taxes, but I have not heard any politician mention them in a long time. On the other hand, I don't listen to them very much any longer.


MossySF
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Post by MossySF »

To tackle the "fairness" argument, you have to also look at benefits received. The millionaire is most assuredly getting far more services than the average worker. Take for example this article:
http://www.rollingstone.com/politics/ne ... t-20110411
Is it fair they're only paying 15% tax on income they "earned" by borrowing from the Federal Reserve at 0% and re-lending back to the U.S. Treasury at 3%? Fuck no.
But guess what. Life is not fair.


mikeBOS
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Post by mikeBOS »

@Mossy "But guess what. Life is not fair."
Sure, because of the luck of the draw. But that doesn't mean we should actively support policies that make it even less fair.


Piper
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Post by Piper »

What about our corporate "people"? What about how I, with a near minimum-wage income, paid more income tax than a lot of our corporate citizens? I don't get to pretend to live overseas to avoid taxes.


dragoncar
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Post by dragoncar »

Just goes to show that you can't really ask a value neutral math question.
Ask people how to calculate X, and half will say you should really be calculating Y.


chilly
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Post by chilly »

I'm curious to see the specifics of some of these returns where rich people pay extremely low rates. I'd just like to know how they can manage it. Obama's doesn't look too sneaky... around 25%.
http://www.whitehouse.gov/sites/default ... _taxes.pdf


MossySF
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Post by MossySF »

The simple answer to the math -- no, that millionaire is not 200X more important because a true free market will create another millionaire to replace him. That millionaire is generating his money from buy/selling goods to/from the ordinary people. If he takes his ball and go home, somebody else will start providing those goods and generate the same tax income.
It total self-glorification, self-masturbation to pretend otherwise.


photoguy
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Post by photoguy »

what's the definition of "important"?
One might argue that value is whatever someone will pay. On the other hand, the US is democracy which means 1 person = 1 vote.


ademac
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Post by ademac »

I think most are missing the point, Taxes are theft.
It is you duty as a citizen, to do your upmost to avoid paying them.
This is what one of Australia's most richest men had to say when questioned by the political class.

www.youtube.com/watch?v=Pf0gj_ezbc8
Enjoy


jacob
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Post by jacob »

It ultimately boils down to the difference between
1) Who earns the money/creates the wealth.
2) Who gets to spend the money/use the wealth.
Taxes is a mathematical function that transforms (1) into (2). In other words, it is redistribution run by the government.
Arguing whether taxes are fair or not clouds the issue because it is secondary to the real issue which is (2).
[This discussion is similar to the recent budget gridlock. I noticed that the primary interest of either side was to cut only budget entries they disagreed with politically rather than do a wide cut of everything, say.]
* I sometimes wonder how many problems/complexities are created by having essentially two different systems of distribution operating at the same time viz. political and economical, instead of just one. *


DVDend
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Post by DVDend »

@ademac,jacob: I disagree with the notion that taxes are theft or redistribution. Taxes fund service such as police, army, fire department, education, courts, streets... There are countries that do not have these. I do not want to live in one.
I do not know what is fair way to fund the above. But I think that a flat tax rate on all income (employment, dividend, capital gain) of around 20-25% with no deductions is the most fair proposal that I have seen.


ishidav
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Post by ishidav »

Before talking about what's fair, I think it's more important to come to an understanding of what one derives value from. Suppose I am a rich person. I derive a great deal of value from publicly provided potable water, education, etc. Not just for myself, but because I do not have to create those things for my employees, the people whose labor I buy.
Now suppose I am a poor person. Publicly provided services for everyone else still provide me some value, but not as much as for the rich person. As a poor person, I will be buying less of other people's labor. In an ideal world, the poor person would still be able to create and keep capital produced from their labor, or sell the capital for the value of the labor. In the real world, poor people are forced to sell for less than the value of the labor. I think this is the bigger problem.


jacob
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Post by jacob »

@DVDend - Taxes are certainly taken from you and given to someone else and if you resist you go to jail. That's the definition of [forced] redistribution.
You can take the money based on earned income, non-earned income, assets, head toll/tax, consumption, trade. Each form of taxation will hit some more than others. (For instance, as far as I'm concerned you could increase earned-income taxes to 100% since I'll get along fine without it.)
Similarly, you can give the taxes back but different people will benefit differently. Someone with $1M in assets will benefit more from police and fire protection than someone without any assets. People with children will benefit more from education. People with cars and industry will benefit more from streets. (I benefit heavily from public libraries.)
I need a good definition of "fair" to proceed with this. For instance, to an individualist, fair means taking care of himself and not burdening others. To a collectivist, fair means to each according to their needs and from each according to their abilities.


DVDend
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Post by DVDend »

@jacob: You can avoid taxes easily without going to jail. Just stop participating in the economy and have no income! I see tax as a "transaction fee" for participating in a functional economy. Redistribition is where something is taken from you. Correct! Taxes are only taken on transactions. Therefore it is not redistribution.


jacob
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Post by jacob »

@DVDend - However, the economy is a monopoly. For example, you and I can't trade in our own two-man economy without getting taxed by a third party. Hence participation is not voluntary. Due to nationality/visas/immigration policies, it is also not possible to just "move out".
(We should be careful not to argue specific details over the principles. Taking the specifics into account, it is certainly possible to earn a low income and yet pay little or nothing in taxes, thus getting a free ride. Stay under the deductible, get qualified dividends, etc.)


DVDend
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Post by DVDend »

@jacob: The arguments becomes circulatory: Yes, one cannot participate in the economy without paying taxes. But without taxes, there would not be the economy to participate in. The only way out of taxes is to not participate in the economy.


jacob
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Post by jacob »

@DVDend - This is not true. If, say, 5 of us or even two of us got together and started trading with or working for each other, we would participate in an economy/market independent and outside of THE economy. In other words, we are free to start our "own club".
Despite not participating or using any services of THE economy (the other and much larger club), we would still have to pay taxes to THE economy. The only way out of taxes is not to do things that get taxed. Running a household-economy (I don't get taxed on the work I do when I cook for myself) is one such way and one of the underlying tenets of ERE.
We need to distinguish between "the economy" and "an economy".


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