<p>
But they do live in a place where they have the option to do something about that. Which is why so many poor people take all sorts of risks to get here. :)</p>
<p>And it is their fault when they don’t make it because we know it is a level playing field and there is something wrong with a person if they don’t make it. </p>
<p>Driver, I know you don’t like Robert Reich’s views, but did you ever see his speech at Berkeley?
<a href=“Webcast and Legacy Course Capture | Research, Teaching, and Learning”>Webcast and Legacy Course Capture | Research, Teaching, and Learning;
Click on 04/05/05.</p>
<p>Upward mobility is getting harder and harder. What happens if people stop believing in upper mobility in this country? Then some of us are really going to have to worry about tax rates. :(</p>
<p>
</p>
<p>Okay - you’re just not paying attention. Scroll down to the thread I started where I listed the IRS figures through 2003 for average tax rates on the top 1%, next 4%, next 5%, next 15%, next 25%, and the bottom 50%. Every category in the top 50% pays about the same percentage in average combined federal income and SS taxes - between 25% and 28%. That’s not the marginal rate or bracket - that’s the actual overall payments as a percentage of income. Only when you get below $30,000 does the average rate drop to about 15%.
We don’t have much progressivity in our current tax system. The top 1%, with average incomes of $820,000 per year, take home the same percentage of their income as the 3rd quartile with average incomes of about $45,000. Your “Fairtax” would undeniably cut the tax on those with the most income - I don’t think you will seriously deny that. The net result is necessarily a regressive system, where the less affluent pay a higher percentage of their income than the very rich. All I’m asking for is an explanation of why that is a good thing. Why should the wealthy pay less than everyone else? I’d be happy to return to the very modest progressivity of the tax system we had as recently as the 1980’s. I cerainly don’t see any justification for an upside down tax system where the rich pay less than the middle class, yet that is the unavoidable consequence of a “Fairtax” type tax system.</p>
<p>You discussants left out several big components of tax that do impact the less rich disproportionately, and must be considered in the discussion:</p>
<p>FICA - over 15% for those below ~90K;</p>
<p>Sales taxes - can be a big part of disposalbe income for the “less wealthy” who cannot save or invest.</p>
<p>propert taxes. Yes, even renters pay it, through their rent.</p>
<p>If you look at TOTAL tax burden, who gets hit the worst.</p>
<p>Not fair, you say, to include state and local taxes? Why not?</p>
<p>It is not appropriate to consider FICA a “tax” since it is nothing more than a forced retirement savings plan which returns more than what is paid in. While people above $90K may stop paying into the system, they also have their benefits limited to what they would get if they were making $90K. The program is also progressive since those earning less get a larger percentage payback than those at the top of the scale, nearer to $90K.</p>
<p>Actually, it is a tax. If you die before retiring, you get nothing. If you don’t, the amount you receive, as you correctly point out, is only loosely correlated to the amount you pay in. Nor is it based on an individual’s life expectancy. A lot of people get less out of SS than they pay in (the system wouldn’t be running a surplus currently otherwise.) It’s a means of mandatory intergenerational income transfer, that is: it’s a tax. Of course, “tax” is a dirty word, so it’s tarted up as something else. But it’s still a tax.</p>
<p>FF,</p>
<p>regarding FICA, you are confused.</p>
<ul>
<li><p>It is not a savings plan, pure and simple. Any talk of savings is fiction, and I suspect you know better.</p></li>
<li><p>since it is not a savings plan, any connection between what you pay and what you get out is completely illusory and artificial. You might even note that many folks that contributed nothing get big payments - disabled for example.</p></li>
<li><p>If you look at the payment side solely from the perspective of lifetime earnings, yes, it is mildly progressive. From any other point of view, it is not.</p></li>
<li><p>the tax part is highly regressive.</p></li>
</ul>
<p>Now, FF, what don’t you understand about it?</p>
<p>I just have had a very hard time getting in to CC.</p>
<p>Just so we’re all on the same page here, this is the data from 2003.</p>
<p>Proportion of income paid in income tax (income tax paid divided by AGI):
top 1%–24.3% (average of all payers in this class)
top 5%–20.7%
top 10%–18.5%
top 50%–13.35%
ALL taxpayers= 11.90% This does not include SSI & Medicare.</p>
<p>Floor AGI income for each rate, just so you know who is considered “rich”:
top 1%: 160,595
5: 70,696
(the rest are so low as to not be worth mentioning)</p>
<p>Portion of all income taxes paid:
top 1%: 34.3%
5: 54.4
10: 65.8
50: 96.5</p>
<p>Compared to portion of all AGI:
top 1%: 16.8%
5: 31.2
10: 42.4
50: 86.0</p>
<p>Part of the problem of this discussion is that we are using terms like “less” and “more”, “rich” and “poor”, which are inherently vague and value-laden. To some of you, all that matters is the proportion of tax to AGI of the highest taxpayers. OK, that’s one measure, but IMHO, AGI is not the best measure of wealth (“richness” if you will). </p>
<p>If we add in SSI & Medicare? That skews figures to lower the burden on the highest income earners. There is no doubt that these taxes are regressive, and are a significant reason that those with wages below the limit of ~90K fail to accumulate wealth in the same proportion to higher wage earners and those who do not depend on wages for income.</p>
<p>How do you count people like Ross Perot (A favorite example of why we have the AMT)? They don’t have earned income, and they don’t have taxable income, but you 'gotta admit, they’re rich. :D</p>
<p>What if the proportion of federal taxes paid by “the rich” goes up under the FairTax, even if the ratio of tax to income goes down? Would that be more desireable? I admit I do not know exactly what part of total purchasing is done by the top 1% of AGI earners, and I’m unaware if that sort of data is available.
What I deny is that income, and only income is a measure of wealth. And I absolutely believe that what is repugnant about our system is not that Sean Hannity and Teresa Kerry can afford private jets, but that they can “arrange” their tax situation so that they don’t pay any federal tax on the dollars that buy them.</p>
<p>Look, I have to go cook dinner, but there is the other side of this that needs to be discussed. I’ll be back.</p>
<p>New from Mark Steyn, a guy who left the warm embrace of the sophisticated Euro-Canadian nanny-state for the wilds of northern New Hampshire.
</p>
<p><a href=“http://www.nationalreview.com/nrd/p.php?i=20051107&v=t&a=7473[/url]”>http://www.nationalreview.com/nrd/p.php?i=20051107&v=t&a=7473</a></p>
<p>Wyogal, the fairtax doesn’t address your concerns. Sean Hannity and Teresa Kerry can still buy private jets and avoid the tax. The jets just have to be used.</p>
<p>So you are not in favor of eliminating the capital gains tax and the estate tax? Those are two taxes that help tax wealth.</p>
<p>Let’s say I can support the principle of the fairtax. Don’t you think the numbers should add up, and the facts about what every income class and every wealth class will pay in tax should be known? How can anybody support something without knowing who is going to pay how much?</p>
<p>That’s why I would like to see the answers to my questions in post 88. My guess is the answers don’t exist in any fairtax literature. Prove me wrong.</p>
<p>And while you are at it, what do the wealthy get hit with in the fairtax? If I am worth $3 million. $5million. $50 million. $500 million, what are my spending habits? Will they change under the fairtax?</p>
<p>Edit: I see you mentioned you don’t know the consumption patterns of the top 1% AGI? Do you know for the top 5%? 10%?</p>
<p>Does Ross Perot have all his money in munis? Don’t munis serve a purpose? How much money does he have in untaxed capital gains? Wouldn’t you like to see some of that money taxed when he dies?</p>
<p>Now I’m curious. How is Sean Hannity shielding the money he makes from his Fox tv show and his radio show?</p>
<p>Wyogal - yeah - I think that thing they call “life” is what happens when we’re not on CC ;)</p>
<p>First let me say I’m glad you went to the data. My biggest gripe is that people form opinions, which policy follows, without taking the effort to look at readily available data. But… a few comments - first, you picked the wrong row for “income floors” - you used the one that’s adjusted to 1985 constant dollars. The 2003 1% floor in 2003 dollars was $295K; the 5% floor was $130K. And since we’re talking about “average” incomes and “average” tax rates, I think it’s best to use the “average” income for each segment of the analysis, not the floor. It’s not listed in the report but is readily calculatable from the data which is provided. And like I said, the average income for the top 1% is about $820K per year.</p>
<p>Next, you say
I wouldn’t use the term “skews” although I agree with the rest of what you say. Failing to include SS taxes in the calculation, in my opinion, “skews” the data by making the actual tax burden on different segments of society appear more progressive than it actually is. The “Fairtax” proposal is supposed to replace SS taxes as well as income taxes, so an anlysis which ignores the impact of SS tax is incomplete and misleading. And when you add SS taxes back in you get the numbers I presented - an average tax burden between 25% and 28% for everyone who earns over $30K per year, whether they earn $45K or $820K. It’s just that the higher income sector pays a bigger percentage in income tax, and the lower sector pays a bigger share of SS tax. It all ends up pretty even, however. (This is a change in the past 20 years. The total used to be mildly progressive.)
To put it another way: the average combined income and SS tax is flat for all taxpayers above $30K per year (actually slightly regressive towards the very top.) Obviously there will be individual exceptions for a variety of reasons. We’re dealing with the big picture, however, and the statement holds true for the average of all top 1%ers, the average of all 50-75% taxpayers, etc. </p>
<p>Which leads to my fundamental question about Fairtax: If the average federal tax burden on everyone who earns over $30K/year is over 25% of their AGI, how do you succeed in replacing that revenue with a consumption tax of less than 23%? I’m trying to picture a scenario where people spend more than their AGI on items that would be taxable under Fairtax, and failing.</p>
<p>I had no idea this group existed. It does have to be a small group.</p>
<p>Inflation can really be a killer with a sales tax.</p>
<p><a href=“http://www.jpfo.org/fairtax.htm[/url]”>http://www.jpfo.org/fairtax.htm</a></p>
<p>Oh dstark, did you get to the bottom of the whole page? It was tough as it took forever to load. The last line is “what would they propose?” The answer: Nothing. No income tax, no flat tax, repeal everything except tariffs and excise taxes. 
:D</p>
<p>And you think the FairTax doesn’t have a chance? ROFL</p>
<p>Look, most of their objections fall into the “it won’t stay the way it’s written” category. Well, the FairTax is only a tax reform measure, it’s not a government reform measure, it won’t keep the Congress from spending beyond our means, it won’t keep the lobbyists from trying to gain an advantage for their clients, it won’t relieve citizens from the obligation to pay attention. You can make these kinds of arguments about any tax legislation of any kind, ever. It is a waste of time to discuss it, and that’s my final word on those sorts of arguments.</p>
<p>more later</p>
<p>Of course I read all the way through. :)</p>
<p>I actually do have a radical/reactionary proposal: Instead of brilliant new proposals on how to slice up the pie, how about we return the entire income tax system to the way it was in 1985, then commit to keeping it unchanged for twenty more years? We’d get: stability; ability to plan, knowing what the rules are going to be; reduced corruption and wasteful lobbying expenses. And a mildly progressive tax structure.</p>
<p>kluge, are you talking about the Bill Bradley tax structure or am I a year off?</p>
<p>Weren’t capital gains taxed at 28%? Weren’t estate taxes much higher?</p>
<p>All right, I am going to try to get you guys your info on how people in different income and wealth classes spend their money. I realize after your repeated questions that you don’t necessarily believe that people with more money spend more (like lobster instead of perch, filet instead of hamburger). Even if you do agree with that, I don’t have a firm handle on what proportion would be satisfactory to you. But in the meantime, there are some Big Picture points to consider.</p>
<ol>
<li><p>Under any circumstances, for any demand by a State of its citizens, a system based on voluntary participation is morally superior to one based on coercion. This is true regardless of whether you are talking about the draft, slavery vs. paid employment, charitable giving, illegal activity, or taxes. The reason for this is that once the State turns to coercion, there is the question of who makes the decisions for each particular situation, who decides who is to pay, and who is to benefit. And that leads to rule by man, not rule of law.
All major religions incorporate this as “free will.” Considering this, how to construct a voluntary tax system? By taxing consumption.</p></li>
<li><p>There is universal agreement among economists (and others) that the US personal savings rate of approximately 2-3% of GDP is insufficient to sustain economic growth. How can one justify a tax system which punishes savings and industriousness by taxing those activities at the first dollar, and at higher and higher rates? How can one deny the working poor the opportunity to save by taxing away the first 15%+ of earnings? How can one support a tax system which discourages wealth accumulation and investment in new productive activity?</p></li>
<li><p>We have examples all along the income spectrum of policies which discourage self-sufficiency, work, and productive investment, because of discontinuities in the net effect of public policy. As long as there is government interference in individual decision making, that will be the case. Particularly egregious are the discontinuities at the lowest end of the scale, which rob the truly indigent of the opportunities we once afforded penniless immigrants to improve their position in society, oftentimes seeing grandchildren or even children become college graduates. (Please excuse the economist jargon 
) </p></li>
<li><p>Because of the complexity of the current coercive tax law based on income, it is impossible to assure that every individual household pays its “fair share.” The super rich have their “non-profit” foundations and charities where they are board members, which pay for all the travel, private jets, second homes, yachts, hotels, and so forth, as well as similar lifestyles for their children (Warren Buffet is an exceptionally egregious example of this). The not-so-super but still rather rich incorporate themselves to pass the perks through, using corporate expenses to offset personal consumption. Both of these groups join the simply affluent in arranging pass-throughs of non-taxable perks via charitable gifts.</p></li>
</ol>
<p>I have more, but as kluge said, life is what happens not on CC :)</p>
<p>dstark - I actually don’t remember. I picked that year because it’s the first year on the IRS chart - and it’s been downhill ever since. I do recall that accelerated depreciation was tightened up in '85 - but not much more. My main point is that predictability and stability have an inherent value. </p>
<p>Wyogal - I actually have a fair amount of sympathy for the concept you are advancing and the principles you cite in support of it. My concern is: “The devil is in the details.” Let’s be candid - Even if the food consumed by the wealthiest 1% of the population is, on average, more expensive than the food eaten by the bottom 50%, it’s still not going to be 60 times more expensive - and the average income in the top 1% is 60 times higher than the average income in the bottom 50%. (Remember, the average income of the top 1% of the population is over $800,000 per year.) And in fact, the majority of the food people eat costs about the same, rich or poor. So lobster vs. hamburger isn’t going to make everything even. But my more basic problem is that I can’t get the numbers to equal the revenue stream under the current tax system. Consider this from the Fairtax website:
I believe that that analysis is basically correct, although their numbers are off a little. And what it means is that the hypothetical couple making $40K per year, and spending every penny (on FairTaxed items) ends up paying less than they do now. I think that’s correct. And it’s even more true for every income level above $40,000. As I’ve pointed out, based on the IRS charts, the average combined taxes on all income levels from $45,000 up is between 25% - 28%. So unless people spend more than their AGI each year on fairtaxable (i.e. new) items, a sales tax rate of less than 23% will not replace the current revenue - unless the difference comes from people making less than $30,000 per year. (I haven’t done the analysis, but I don’t think that would happen.) And in fact, affluent people don’t spend all of their income - they invest some of it - and on average the more income people have, the smaller the percentage of it which is actually spent. </p>
<p>No system is perfect, but… you pay your bills out of your income. Without income, it’s hard to pay bills, including taxes. If you make less affluent people pay a higher proportion of their income than the more affluent people do (and your system will inevitably do that) then you push more of the burden of funding public services onto those with less ability to shoulder that burden. And I don’t think that’s a good idea.</p>