A 100% Tax on the Rich?
This is Warren Buffet, writing in the New York Times:
But for those making more than $1 million there were 236,883 such households in 2009 I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more there were 8,274 in 2009 I would suggest an additional increase in rate.
However, according to the Tax Foundation’s David Logan:
Even taking every last penny from every individual making more than $10 million per year would only reduce the nation’s deficit by 12 percent and the debt by 2 percent.
I generally greatly enjoy your blog but this is your dumbest post ever.
Just because increasing marginal tax rates on those with very high incomes won’t single-handedly solve the federal budget problems doesn’t mean we shouldn’t do it.
I don’t mind that my marginal tax rates are 4 or 5 times what someone making 1/4 of my income would pay, but it seems absolutely ludicrous that someone making 10 times what I make would pay lower marginal rates.
The taxing the rich rhetoric is not serious. It’s just Obama’s way of stirring up the base.
@ Shawn
I cannot think of any scenario where I would be willing to pay 4 or 5 times the marginal rate as someone making one-quarter of what I earn. If half of workers are exempt from paying federal income taxes (which is about the case), they have an incentive to demand infinite amounts of government services since they pay nothing for them. Even though the revenue raised would be very small, I believe there is some merit to having everyone pay something so we all have a stake in taxing and spending.
I would argue marginal tax rates should reflect what people do with their income. If they investing it and create jobs, the capital would be better left untaxed or taxed at a lower rate because job creation will do more for people’s well-being than transfer payments. The income could still be taxed at a later date such as through capital gains or estate taxes.
However, if people consume their income, there is no reason not to tax it at that time.
To some extent tax policy is social engineering. Government taxes alcohol and tobacco to discourage behaviors society considers potentially harmful. At the same time necessities such as drugs and food are often tax free (at least in some states). I see no reason income taxation should not further encourage (and reward) investing (saving) rather than consuming capital.
If only there was a tax structure that promoted wealth, and treated everyone the same…oh wait, the flat tax.
The reason why there are so many loop holes in the current tax code is to promote horizontal equity, or treating people in similar economic circumstances the same. Most would agree that in the pursuit of preserving horizontal equity we have lost a good deal of vertical equity as well shifted neutrality and increased administrative cost of our taxes. Yes, there is even crony capitalism in the tax code. If anything there should be a reform of the tax code to address the tax base, not an increase rate on a small base. On the surface a lower marginal tax rate may appear unfair, but is it fair that over 50% of workers do not pay any taxes?
By the way my annual income is below the federal poverty level. Why should someone else pay my way?
I think the point of the post is that taxing rich people won’t solve our nation’s problems. It’s not necessarily that the current tax system is broken.
But, that aside, Devon’s right. You’re better off taxing consumption or favoring investment, rather than looking specifically at income relative to others.
It would also be more effective to close loopholes. Often the wealthier pay less because they know where to look for loopholes and how to get tax breaks (Warren Buffet). And if we’re talking about tax reform, corporate tax reform should be at the top of the list.
A couple making $19k per year is only paying Social Security and Medicare payroll tax, no federal income tax. So they’re paying about 9% a year when my marginal federal tax rate (again, including payroll tax) is closer to 37%… about four times their marginal tax rate. Despite rhetoric about the “lucky duckies”, many people who pay zero federal income tax are still paying payroll tax, including these sneaky people making $19k per year. Anyhow, I feel that someone living on $19k/year shouldn’t have to pay 37% of their income to federal tax… 9% seems about right. I’m a lot better off, I get to live a comfortable American lifestyle, I can afford to pay a bigger chunk of my income to federal tax. And, as part of an overall progressive tax system, I find it fair.
@Devon
I don’t know if you think a couple living on $19k/year should pay more than 9% or that someone making high-five-figures/year should pay less than 37% (as a marginal tax rate, obviously my average tax rate is less… probably around 28% including payroll tax). Which is it?
The problem, in my opinion, is that the progressively stops with incomes around $120k. Above that threshold, as payroll tax fades out, and capital gains becomes a larger share of individuals’ incomes, our tax system becomes regressive.
There are lots of solutions; a flat tax, a consumption tax, additional tax brackets. I don’t know what is best but I think possible solutions should be debated. What the original post did up top was set up a straw man about taxing the rich at 100%. Not helpful. Does anybody have a reason that our tax system should switch from progressive to regressive around $120k/year?
The fair tax idea is intriguing, but the flat tax is probably the best alternative to what we have now.