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112th Congress: Everybody's Angry At Everybody
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Oh come on. He advocates a more regressive tax system, because the current one is too progressive. He also seems very much opposed to the idea of taxing wealth. The only real conclusion is that wealthy people in his ideal world pay the same or less taxes, and middleclass and poor people pay the same or more.
The only thing I add is that governments are the prime tool of redestributing wealth, because they are more or less free in deciding who they ask money from (yes it has reprecussions if you taxate one group too much, but I'm fairly sure we're nowhere near that end of the laffer curve for income tax, and certainly not for coorperations who pay a piddly 7% of the total tax income of the USA). They are also fairly free in deciding what they spend money on, though certainly the public demands a lot of them in that regard.
It's smarter to fix those problems on the spending side. I can get behind spending that ensures everyone can participate in the economy to the maximum of their ability. Have the public pay for education, health insurance, food and other consumables stamps, and housing subsidies. Obviously all of those programs could be improved in practice. I'm talking about the principle of the matter.
Beyond making sure that everyone can fulfill their potential I'm not interested in redistributing wealth.
You do realize that all those things you just listed are what people are talking about when they say "wealth redistribution".
That is the entire point of the exercise.
I disagree that the US system is 'too progressive'. Even sticking w/ optimal tax theory, the income tax should be progressive at low levels and regressive at the upper end of the income distribution. I'd rally against the notion that higher income levels should be overly-taxed, but on a personal, non-economist, position, I think it makes sense to place a high average % of tax on them.
Uh, yes? You may notice that I too call them wealth redistribution.
I'd propose that an overly taxed person would drastically cut down on the effort exerted on their work. So, if you're facing a tax of 40%, you'll gladly work until you earn £500k, but at 60% the incentive is less so you substitute away from work to leisure and only earn £350k. This would imply a negative externality on the rest of society as less tax is collected (roll with me here, I haven't actually crunched the figures on this example), and they may not 'create jobs' by expanding their business. Of course there's going to be a value judgement there somewhere, but it shouldn't be massively controversial when the data is presented.
The exact sentence I quoted implies you think people believe in something other then this. Redistributing wealth for it's own sake.
I'd like to see commentary from any mainstream source suggesting this as serious policy.
The problem is that I don't think anyone has ever presented any evidence that your example has happened.
It's like investment banking, or doctoring.
Both of these jobs are characterized by an important aspect: they make loads of money. They also share another aspect: the hours suck if you don't love the job in some way.
This also leads to another interesting property: the hourly wage from them is actually not that great compared to other blue-collar professions.
But! The difference between them, and other blue-collar professions, is that there's simply the opportunity to make the amounts of money involved - i.e. work the longer hours to get them, whereas this does not necessarily exist in other jobs.
We've been talking past each other. I'm saying: "I'm interested in redistributing wealth up to and including making sure that everyone can fulfill their potential."
You will find that many on this board are OK with redistributing wealth beyond that based on marginal utility and other arguments. Anybody want to chime in and confirm that they favor wealth redistribution beyond liberty as capability, i.e. Amartya Sen's argument? Goumindong: I'm pretty sure you do for starters.
From: Feldstein, Martin (1995). “Behavioral Responses to Tax Rates: Evidence from the Tax Reform Act of 1986.” The American Economic Review. Vol. 85, 2.
"A decrease in marginal tax rates causes not only an increase in labour supply (broadly defined) but also a shift in the form of compensation (from fringe benefits and other nontaxed income to to taxable cash compensation) and a rise in deductible expenditures as the relative price of ordinary consumption falls relative to the price of such tax favoured consumption..."
Although perhaps not strictly my example, it's in the same spirit that tax rates are inducing a behavioural change. In addition, I know plenty of working professionals who alter their effort/salary depending on the marginal tax band, although that's anecdotal evidence more than anything else.
I believe the opposite has been shown, I may have to look around and find numbers.
But no, somebody making $500K is not going to suddenly slack off and make $350K because their taxes went up, because somebody who makes $500K likes making $500K. And $400K or $450K is still closer to $500K than $350K.
Though they may spend an extra $10K paying some real smart accountant to figure out how to hide their income, leading to the same net tax revenue. That's not entirely unlikely.
EDIT: Oh, yeah, and fringe benefits. Nothing like having the company pay for your Lambo rather than having the income used to buy it taxed. Still get to drive a Lambo, after all.
It happens in small ways now. I've had to deal with it myself, at points where I was faced with the decision to try to stretch negotiations for enough of a raise to cover the accompanying increase in tax, or decline to put in the effort for one because I felt certain the increased income wouldn't be high enough to make it worth my while. Before Bush flattened the income brackets, there were small ranges where you could end up taking home less because you got a raise.
Sure, it's only small potatoes here, but every time you move into a new tax bracket you have to ask yourself if it's really going to result in more net income and if so, does the net justify the work needed to get the increased gross. Sometime,s the answer is no.
Of course, my example was just an exaggeration to make my point clear.
But it makes sense that as people become richer their marginal utility of income falls. They're already loaded, so what does an extra dollar mean to them, especially if it's got a huge tax on it? Now, an interesting counter point; my uncle works in an investment bank (boo, hiss etc. yeah okay) and he's away from his family a lot, doesn't really like the people too much and is basically just always stressed and tired. When asked 'why don't you just lob it in and become a teacher with your massive pool of savings?'
"Because the money is addictive"
Go figure. Although I'd say that the example has little to do with the tax discussion, your comment about rich people enjoying making money reminded me of that.
Tax brackets only cover income above the bracket threshold, so the answer will never be "no." Ever.
Er...you do realize that federal income tax uses marginal tax brackets, right? As in, if you move into a higher tax bracket with more income only the portion of the income above the line is taxed at the higher rate, not the entirety of your income?
I just want to make sure you aren't implying something else here.
Isn't this more to do with the interaction of welfare programs and the tax brackets? The common problem being that there were traps where you'd make just enough not to qualify for them, but then if you suddenly didn't you ended up no longer having as much money.
That's a different kind of problem.
A heroin addict isn't going to turn down heroin because it's not as much heroin as he'd like
Same way an investment banker isn't going to turn down 50% of $500K, but work his ass off for 40% of that same sum. If a person likes having more dollars, they like having more dollars. And because we use marginal rates, working more will always lead to more dollars.
Obviously, as the Laffer Curve suggests, there does exist a rate at which what you're describing will certainly happen (absent force, nobody will work if you take 100% of their wages). The problem is that neither you, Laffer, nor anybody else can explain what happens on that curve between about the 20% and 80% rates or so, and most people that aren't pants-on-head retarded don't honestly believe that what you're describing would happen given a bump from 30% to 40%.
Oh, you're going to have to give me some example numbers on the bolded, which since you claim personal experience you can certainly produce, for me to not tell you you're full of shit. Marginal rates pretty much guarantee that for every additional dollar you make, you will take some positive number of cents home; it's nearly impossible to wind up needing a raise to "cover the increase in tax."
Well, unless you live in some country that isn't the U.S., and is fucktarded.
Yes, I know. Things are better than they were before 2001, but even today, if you're married and making $68K, and you get bumped to $70, you're going to lose ~25% of your raise to increased taxes. That's roughly $28/week instead of $39/week (not counting the increased FICA, etc)... is an extra $28/week worth asking your boss for a $2000 raise? Is $39/week? That's a question each individual has to answer for himself but, depending on the job, it's reasonable to think some people will say "no, it's not worth the effort."
Well, it isn't the money that is addictive, its the social status that comes with it. After all basic needs are met, humans are happier the higher their perceived social status is.
Which is why things like racism are hard to get rid of, as it isn't just a learned viewpoint. Putting other people down makes a person feel happier about themselves. Having more money is just another way to put yourself above the person next door.
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
If you're the kind of person who thinks asking for a $2K raise wouldn't be worth the effort it because you'd only keep $1500 of it...
...well, let's just say you probably don't deserve the raise anyway. Kind of a nifty little built-in test, I'd say.
You are rejecting ~$1,500 a year for like, no reason though. Basically because you're either lazy, or feel that trying to get said raise would pose a serious risk to retaining your existing employment.
What can you not do with $1,500 that you could so with $1,700 (if your rate on the extra $2k remained at the 15% of the previous bracket).
In fact, you are saying that for you, it is not worth trying to get $1,500 a year more if you can't have that extra $200.
Basically I am calling bullshit: the reason you're not asking is basically entirely divorced from the taxation.
He's not arguing that, rather that the increased tax bracket will reduce the raise enough that the increased money isn't sufficient.
Its nonsense still of course.
Actually, he said both. Which is both absurdly untrue and entirely unaffected by Bush's enormous handouts.
Personally, I've never passed up the opportunity, because of exactly what you said. People are not always rational actors, though, and perception matters as much as anything when you're trying to craft policy. Just as chidona's uncle makes an irrational decision to pile on the cash no matter how miserable it is, others perceive breaking into a new tax bracket as a "punishment for working harder". That's one reason why flatter, wider brackets are better.
Now, we can have a discussion about whether catering to irrational financial activity is good policy, but that isn't the same thing as saying "no one ever slacks off in order to avoid a higher rate of tax". Some people will, and to the extent we can avoid making people feel like the tax code punishes hard work while also crafting good policy (whatever that might be!), we should do it.
The heroin analogy isn't really appropriate, I don't feel, perhaps gambling? To be honest though, whether or not money is 'addictive' is by the by.
And it's true and does happen, I don't really know what else to say. I've given evidence that lower marginal tax rates are associated with changing behaviour, and there is more out there as well. Higher marginal tax rates do have an effect on behaviour at the margin, simply because it's not to do with the sum of money, but the marginal utility of money relative to the marginal utility of leisure. A change in the marginal tax rate can therefore lead to a decrease in hours worked as they substitute away from work to leisure.
As much as I hate 'it's like...' theoretical examples, let's try one.
So, I'm loaded, have enough in the bank to retire for 4 or 5 years with no pension and maintain my standard of living. However, I'm working 12 hours a day, but I'm happy 'cause I'm earning £400 an hour. Okay, so the marginal tax rises and that falls to £380, which is a small fall, but adds up. Well, for £380 is it still worth working 12 hours a day? I could cut it back to 11 and then have an extra hour to spend with my family; I don't /need/ the extra money, and the extra hour I get with my family is worth more than £380 to me because I get so little time with them anyway.
Of course, the question is when does this behavioural change occur to such an extent that it has a net detrimental effect on societal welfare, for which I only suggest that it's a value judgement.
I have two friends, married couple with two kids and an annual income of $140K or so, that claim because of the phaseout of various credits their effective marginal tax rate on the last couple of thousand spiked above 100% last year. I don't know enough about the income tax code in that range and involving children to evaluate the veracity of their claim. Anybody here know if it's possible?
Yeah, happened in the UK due to the interaction between the benefit system and tax system; the effective marginal tax has, at points, gone above the 100% threshold. I'm sure it's happened in the US too.
I don't think this is completely unheard of, but it crucially depends on the existence of social welfare programs in the first place. It's entirely possible to have localized traps where by earning more money yourself, the loss of benefits eats up all the extra revenue.
It's basically an argument against creating too many separate but means-tested programs, since you become very likely to create holes like this, and they take too long fix.
Though it sounds like, in their case, that it's really just a figure of speech - if the government stops giving you free money, then yeah, you'll have less money.
The thing is this idea also breaks down at the upper-end of the scale. At some point of personal revenue, you are making so much money that there is no possible way it tracks in any realistic way with the amount of day-to-day physical or intellectual labor you are applying i.e. the amount of work you do is basically going to be the same no matter if you make $5 million a year or $2.5 million a year. It would take a truly absurd level of taxation to affect one's willingness to bank that amount of money.
I wouldn't advocate like, an 80% income tax for the upper bracket, but based on my country's system there doesn't seem to be any problem with an upper marginal rate of close to 50% and I suspect it would have to be a lot higher before we'd see any significant effects. The way the job market currently works I just don't think this is a particularly realistic problem to talk about, doubly so in the context of the US.
Absolutely. All 'unearned income,' including dividends, carried interest, etc. I think I've said as much already.