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Red

Is the federal tax code 'fair'

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Red

The chart below is prior to the change for the 2018 tax year.  I doubt percentages have changed a whole bunch for individual rates.  Foreign and corporate rates did change substantially.  But the question(s) remains how progressive should tax rates be or should they be flat?

The top 10% is shown in gray. (Photo: Deutsche Bank)

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wbw6cos

H.R. 25 addresses being taxed fairly.  I wish it was mentioned more by people trying to keep their jobs  in Washington, but then that takes away their power to tax us. 

 

The underground economy alone can fully fund the gub'ment's spendy ways.  Just sayin'

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realshelby

National sales tax with zero exemptions is the only fair tax......

 

Any purchase made, you pay a percentage. No matter who or what you are. Including government agencies, schools, religious organizations, commercial business, and me and you. Every single purchase. Makes it simple. We need simple and effective. Not really a burden on small or large business, we already have the systems in place to pay sales tax. With everything electronic today, this is easily implemented and followed. 

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Whip

No

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Antimatter
1 hour ago, realshelby said:

National sales tax with zero exemptions is the only fair tax......

 

Any purchase made, you pay a percentage. No matter who or what you are. Including government agencies, schools, religious organizations, commercial business, and me and you. Every single purchase. Makes it simple. We need simple and effective. Not really a burden on small or large business, we already have the systems in place to pay sales tax. With everything electronic today, this is easily implemented and followed. 

 

Highly regressive.  You'll ding people who spend all their income the most, while wealthy people will pay a minuscule portion of their income.  And, the underground cash economy would explode in that scenario. 

A fair tax system would tax all assets the same.  No exceptions for capital gains, real estate switching, and no foreign tax sheltering.  Mind you, I said 'assets' and not 'income'.  No reason why a person whose whole wealth is in their house has to pay a tax on that, when someone with investment holdings doesn't.  And if a corporation is considered an individual for law purposes, that 'person' can darned will pay some taxes, too.  Especially when it benefits from the protections provided by fire/police/military, and gets roads/electricity/sewer/clean water/educated workers provided by society.

BTW, the whole 'the rich pay all the taxes' thing rolls around every year around April 15th (guess why).  If you include all the taxes (sales, home owners, etc.) the primary burden falls on the middle class.

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John Ranalletta

Lawrence Kotlikoff suggests the first reform step is to eliminate federal income taxes on corporations.  Instead, shareholders would pay tax on profits (not just dividends) on the personal income tax returns. https://www.pbs.org/newshour/economy/abolishing-corporate-income-tax-good-american-workers

 

One advantage could be investors are taxed on corporate profits where ever earned, meaning Apple and other corps. wouldn't be tempted to hold huge cash reserves out of country.

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realshelby

Wealthy people pay proportionally less tax now. Sales tax is even across the board. Buy a new yacht, pay sales tax. Buy a 10 lb bag of flower and one of beans, enough to eat on for a while, pay sales tax. 

 

Tax assets? How many times? Every year? First thing that will happen is an age 65 exemption. Texas taxes assets ( property ) instead of income. Too many ways out of paying that. 

 

Corporations? Not "people". Doesn't matter, they buy something they pay sales tax. Including when they buy something out of the country and import it, they pay sales tax on value. 

 

Say no, Hell no, or I don't know....Sales tax is the only fair tax proposal. Underground cash? First of all I suspect "cash" will be gone before long. Sure, there will be ways to beat the system. Oh, some of the ones in use now will no doubt work. That is not a credible excuse for sales tax not working. 99.9 percent of us are honest. I gladly pay my taxes. But I want a system that is more fair. A system that doesn't have a book of rules too big to read in a lifetime. One thing I have learned in my years is that you don't cheat the IRS easily. The more simple the tax code is, the more easy it is to enforce. 

 

Buy something, pay federal sales tax. Economy doing good, guvmint gets more. Not so good, less to spend. 

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John Ranalletta

"Economy doing good, guvmint gets more. Not so good, less to spend. "

 

The government has seldom spent less because it had less coming in.  The issue with a VAT-like tax is that once enacted, other taxes will be ladled on when VAT isn't enough.  There will never be enough.

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Paul De

Given the growing income gap some level of progressive marginal rates are IMO fair.  The more breaks, loopholes and the weird application of the maritime carried interest tax rates by the financial sector favoring the highest incomes suggest a more progressive marginal rate. Get rid of that and a simpler tax code with fewer brackets make sense.   Sales, consumption and VATs tend to be very regressive for the simple reason as income grows less of ones income is spent and more is saved/invested.  The lowest income groups living paycheck to paycheck pay the most as a percentage of their income.  These conversations usually end with everyone retreating to their safe corner and arguing their point from an absolutest point of view.

 

Where things can get really out of hand is the next level of this discussion.  Should the US use the tax code to promote Industrial policy like it is used in other countries, to have long range national plans, to encourage job retention, or penalize exportation of business and jobs to low wage havens. I would say that the US already does do this but unfortunately in a less effective way through a mishmash of narrow special interest carve outs that can and has ceded whole business sectors to the coordinated efforts we have witnessed by our trading partners since WWII.  Now that topic could get this forum turned off, so I'll leave that question open for another day and return to the specific question asked about the US rates.

 

The chart posted by RED is a little misleading in that is does not take into account the dramatic growth of the income gap, so it appears that the top incomes are paying ever more of the taxes while the bottom 50% is pay less.  But the accumulative income growth of the top 10% has really left the the bottom 50% behind which has been nearly stagnant over the same time period.  So the top 10% incomes are paying a larger percentage of the taxes now, because they are making a lot more real income VS the bottom 50%. How is that not fair?

 

image.png.6b3c631acb5237f042065ad4a5b81b7e.png

 

 

 

 

 

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John Ranalletta

The tax codes are written to collect revenue and coerce behavior; so, the first reform should deal with eliminating all sections designed to force a certain behavior such as exemptions, mortgage interest deductions, etc.

 

The tax codes didn't produce the income gap or didn't promote it as much as has low interest rate policy and QE pursued by the Fed since 2008.  Fed policy (through Dem and Rep administrations) has allowed people with some wealth to become wealthier as speculative investments (stocks, bonds, real estate, etc.) became less risky and presented greater capital gain potential.  A small increase in interest rates by the Fed in Q4 of '18 caused a near 25% drop in the stock market.  If the Fed unwound its portfolio (QT) and raised interest rates to where they should be, the gap would narrow appreciably.

 

Poor people don't buy stocks and bonds and their homes usually aren't located in areas where they track with housing prices generally.

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Paul De

 

1 hour ago, John Ranalletta said:

The tax codes didn't produce the income gap or didn't promote it as much as has low interest rate policy and QE pursued by the Fed since 2008. 

The growth in the income gap started decades before QE and the Fed dropping interest to near zero from 2007 forward.  Admittedly, if you were part of the investor class of people (those who made direct investment into real assets, or through retirement savings instruments), the recovery spurred on by the Keynesian policies implemented at the end of Bush and start of Obama Presidencies treated this group of people fairly well and grew the wealth gap (accumulated assets) which is a little different than the income gap which is more of a cash flow thing that I referred to.  The lowest 50% of the income distribution are typically not part of the investor class and living paycheck to paycheck did not allow this group to make those investments.  This group was screwed in a compounded way because over the last 30 years their incomes fell in real terms so more of their incomes went more and more to day to day living expenses.   

 

The sticky wicket here is how does, or should the government try remedy this. Do they build that into the tax code?  Now we're near the combustion point of the topic as this gets into income re-distribution VS fend for yourself.  Sure don't want to touch that third rail here, other than to say that the tax code can redistribute income but not the valuable skills and it is valuable worker skill that drive income potential.  The example here is when the US entered into more expansive global trade after the 60's which macroeconomic theory say is good (comparative and absolute advantage concepts), the US didn't also invest at needed levels for worker retraining as entire sectors of the economy were ceded to our trading partners (steel, electronics and textiles).  We assumed the free market would sort this out and IMO it was a little myopic as structural unemployment increased and that did have a direct connection to the widening income gap we began to see in the 1980s. This is a worthy stand alone topic and is at the core of the coal and petroleum VS renewable energy debate, but I digress from the tax code debate...sorry

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Joe Frickin' Friday
2 hours ago, realshelby said:

Wealthy people pay proportionally less tax now. Sales tax is even across the board. Buy a new yacht, pay sales tax. Buy a 10 lb bag of flower and one of beans, enough to eat on for a while, pay sales tax. 

 

Actually, in most states groceries are not subject to sales tax.

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John Ranalletta

 

Until we solve policy issues around spending, revising the tax code is like arranging deck chairs.....

 

Can we ever collect enough revenue?  I don't think so.  When everyone stops hallucinating about our ability and will to balance budgets and reduce spending the only two options are a depression or MMT, wherein,  the Fed will issue zero interest, zero term notes so the Treasury can flood money into the economy. 

 

MMT is gaining traction is high places.

 

"In one of her most important academic papers, published in 2000, Kelton maintains that government doesn’t actually finance its activity by levying taxes or issuing bonds. Instead, it creates money by spending it into existence. If a government wants to build a road, it calls some contractors and puts money in their bank accounts to pay for it. Where does this money come from? The same place all money comes from: thin air."

 

Revenue becomes a non-issue.

 

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realshelby
4 hours ago, Joe Frickin' Friday said:

 

Actually, in most states groceries are not subject to sales tax.

But they would be under my Federal Sales tax reform! 

 

Everything paid for no matter where or how it is purchased, when money changes hands, there will be a small sales tax. Probably take a lot lower percentage to make this work than some would think. 

 

Until we elect those that actually balance the budget and reduce national debt, none of this matters. Fed isn't an issue. Spending what we don't have is. Just look at the national debt increase lately.........

 

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John Ranalletta

Fed policy is a huge issue.  Increase rates and revenue demands soar to cover interest payments necessitating deeper cuts in other spending.

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Bud

Our tax code is the way we implement social policy. Is it fair? No.

 

We can not continue to spend our way to prosperity w/o paying the piper at some point. When that happens, it won't be pretty or fair. 

 

My state of Illinois is the poster child for how well that is working. For 40 years the politicians have continued to kick the can down the road, always coming up new ways to restructure our debt so they don't have to make the difficult choices that will need to be made to become solvent. 

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longjohn
11 hours ago, Paul De said:

Given the growing income gap some level of progressive marginal rates are IMO fair.  The more breaks, loopholes and the weird application of the maritime carried interest tax rates by the financial sector favoring the highest incomes suggest a more progressive marginal rate. Get rid of that and a simpler tax code with fewer brackets make sense.   Sales, consumption and VATs tend to be very regressive for the simple reason as income grows less of ones income is spent and more is saved/invested.  The lowest income groups living paycheck to paycheck pay the most as a percentage of their income.  These conversations usually end with everyone retreating to their safe corner and arguing their point from an absolutest point of view.

 

Where things can get really out of hand is the next level of this discussion.  Should the US use the tax code to promote Industrial policy like it is used in other countries, to have long range national plans, to encourage job retention, or penalize exportation of business and jobs to low wage havens. I would say that the US already does do this but unfortunately in a less effective way through a mishmash of narrow special interest carve outs that can and has ceded whole business sectors to the coordinated efforts we have witnessed by our trading partners since WWII.  Now that topic could get this forum turned off, so I'll leave that question open for another day and return to the specific question asked about the US rates.

 

The chart posted by RED is a little misleading in that is does not take into account the dramatic growth of the income gap, so it appears that the top incomes are paying ever more of the taxes while the bottom 50% is pay less.  But the accumulative income growth of the top 10% has really left the the bottom 50% behind which has been nearly stagnant over the same time period.  So the top 10% incomes are paying a larger percentage of the taxes now, because they are making a lot more real income VS the bottom 50%. How is that not fair?

 

image.png.6b3c631acb5237f042065ad4a5b81b7e.png

 

 

 

 

 

Is it just a coincidence that the lines start diverging at about the same time as Reagan started the war on unions?

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Paul De
2 hours ago, longjohn said:

Is it just a coincidence that the lines start diverging at about the same time as Reagan started the war on unions? 

The loss of union power to negotiate wages for the middle class happens later in the eighties and nineties.  The income gap starting in the early eighties coincided with reducing corporate tax rates, while the promised trickle down to middle and lower income individuals never happen in a substantial way. 

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tallman

No.

Unless you define "Fair" to mean benefit corporations, churches, non-profits, and wealthy individuals.

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realshelby
11 hours ago, longjohn said:

Is it just a coincidence that the lines start diverging at about the same time as Reagan started the war on unions?

Yes, and it takes time for any changes in policy/attitude to really show end results. Reagan's stance on Unions was the beginning of a movement to legally sidestep union representation. While the firing of the union traffic controllers was completely legal ( they had a no strike contract in place ), it changed the entire dynamic on what corporations could get away with in the fight to oppose union representation. Once it was obvious that government was standing not with unions outright, the changes in how companies were going to handle unions changed immediately. 

 

But that is a whole other debate.........

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longjohn
9 hours ago, realshelby said:

Yes, and it takes time for any changes in policy/attitude to really show end results. Reagan's stance on Unions was the beginning of a movement to legally sidestep union representation. While the firing of the union traffic controllers was completely legal ( they had a no strike contract in place ), it changed the entire dynamic on what corporations could get away with in the fight to oppose union representation. Once it was obvious that government was standing not with unions outright, the changes in how companies were going to handle unions changed immediately. 

 

But that is a whole other debate.........

There is a graph that shows a relationship between Union membership and income inequality. It is startling. I'll try to dig it up. 

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lkchris

The word usually used to describe income tax is progressive ... the more you make, the higher the rate.

 

Yes, the opposite of progressive is regressive and that for sure describes any tax method where everyone pays the same rate.  This of course affects poorer persons most heavily as they obviously can least afford it.

 

The real goal is to have fewer poor persons ... and this is unlikely to be achieved with tax policy ... except perhaps where tax policy stimulates the economy and more jobs become available.

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Paul De
32 minutes ago, lkchris said:

The real goal is to have fewer poor persons ... and this is unlikely to be achieved with tax policy ... except perhaps where tax policy stimulates the economy and more jobs become available.

 

Fundamentally I agree.  The only issue I see with this approach is it is a rather blunt tool and the jobs created in the last decade have tended to be low paying service jobs which don't move many out of poverty.  And in this last tax cut much of that extra cash to corporations went to stock buy backs to increase the valuation of the corporation and helped the investor class more that pulling up those at the bottom of the income ladder.  Those at the bottom of the income ladder got hosed yet again.

 

Sure as the economy has moved to full employment we are finally seeing some upward pressure on wages, but this evaporates or even reverses when the economy slows.  In any case I don't see this as an approach as efficient as targeting skill improvement.   The the tax code has provided for credit and tax sheltered monies for education which surely has been used by many to facilitate gaining skills more valued by the market, but frankly this has benefited the middle and upper incomes.  I am not sure that tax policy alone gets the job done for all other than to not have the tax burden crowd out the private sector.

 

I am not one of those that think free education up through college/trade school for all is the right approach because the recipient of that benefit does not need to have real skin in the game.  Free ice cream for all means a lot of melts and is wasted. This is a great topic on its own, and rather than going tangential here I will kick off a new thread.

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John Ranalletta

One challenge is defining "poor".  The other is the sad but true fact that many of the poor do not have the intellectual capacity to remain productively employed.  THIS IS NOT A RACIAL ISSUE.  Approx 12-15% of all US and world citizens have an IQ level below 85.  As posted elsewhere, the Army will not induct anyone below that level as they are virtually untrainable.  That's a social issue no one wants to address.  The likely answer will not be found in the tax code nor in our current welfare system; rather, it's likely to be a basic income scheme, but countries that have tried it are having mixed results.  When you give an idle person of limited intellect money, what's the likelihood s/he will spend it wisely?

 

Free education?  A farce.  When everybody has a college degree, each one of them is worth less, like in supply and demand.  Plus, with colleges granting degrees in useless majors; grade inflation, et. al........

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poodad
4 hours ago, John Ranalletta said:

One challenge is defining "poor".  The other is the sad but true fact that many of the poor do not have the intellectual capacity to remain productively employed.  THIS IS NOT A RACIAL ISSUE.  Approx 12-15% of all US and world citizens have an IQ level below 85.  As posted elsewhere, the Army will not induct anyone below that level as they are virtually untrainable.  That's a social issue no one wants to address.  The likely answer will not be found in the tax code nor in our current welfare system; rather, it's likely to be a basic income scheme, but countries that have tried it are having mixed results.  When you give an idle person of limited intellect money, what's the likelihood s/he will spend it wisely?

 

Free education?  A farce.  When everybody has a college degree, each one of them is worth less, like in supply and demand.  Plus, with colleges granting degrees in useless majors; grade inflation, et. al........

 

So free primary and secondary education are worthless?

 

You are confusing the cost of a thing with the worth of a thing. 

 

What does a hammer cost? Maybe $10? What's the value to society of a hammer in the hands of a carpenter?  Magnitudes more than the $10 it cost.

 

 

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John Ranalletta

Referring to college/university, not elementary and high school, though, at any level, when something is "free" what's it worth?  

 

Not sure how it works today, but in the 80's, friends in Holland told how nervous they were around their kids' chances of getting permission to continue their post-high school education.  There was competition for scarce slots.  AFAIKnew, not everyone was guaranteed a spot in university and could be tagged for a skilled trade education.

 

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Patallaire

Was in Norway last year, the "Free College" had downsides, after college, since everyone could go for free, if they qualified, no one could find jobs worthy of the education, so after the Tax payer financed the education, people were leaving the country to find employment. It also suppressed the income potential as the degree was devalued.  Not a great rate of return.  Income taxes are progressive, real estate taxes are regressive, sales taxes are regressive, Social Security taxes are regressive. So we are a progressive, regressive system!

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