Comparing Bush’s Tax Cuts vs. Obama’s Tax Cuts

By Justin Gardner | Related entries in Barack, Bush, Democrats, Obama, Republicans, Taxes

Pretty straightforward and helpful for those who don’t realize that they’re taxed at different levels of their income, not just one bracket.

See, I’ve discovered, through the course of just asking around, that many folks don’t realize that they’re taxed at different levels. Many think that if they make over a certain amount of money, all of their money is taxed at that rate. That’s why you heard all that talk about taxes being a disincentive to making more money, which is obviously nuts and was meant to confuse the average taxpayer who doesn’t understand how our system works.

In any event, the graph via Wash Post

And a little more about where this came from:

A Republican plan to extend tax cuts for the rich would add more than $36 billion to the federal deficit next year — and transfer the bulk of that cash into the pockets of the nation’s millionaires, according to a congressional analysis released Wednesday.

New data from the nonpartisan Joint Committee on Taxation show that households earning more than $1 million a year would reap nearly $31 billion in tax breaks under the GOP plan in 2011, for an average tax cut per household of about $100,000.

Does everybody now understand how big of a giveaway this is to the wealthiest 2%?

Were the rich hurting in the 90s when the tax rate was 39.6%?

Can we all agree that people making between $200 and $500K can take a $400 hit?

And to those who make over $500K, well, you still don’t have to pay Social Security tax on hardly ANY of your income. And since many of the super rich derive their income from investments, which is taxed at 15% since it’s considered long term capital gains, you’re still gaming the system effectively.

Yes, rich people…you’re still rich and you still win.

Meanwhile, teachers, firefighters and cops don’t deserve to keep their jobs according to Republicans, but they want to give $10 billion more to people who are so wealthy that few of us will ever understand what it is to be in that company?

Good times.


This entry was posted on Thursday, August 12th, 2010 and is filed under Barack, Bush, Democrats, Obama, Republicans, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

31 Responses to “Comparing Bush’s Tax Cuts vs. Obama’s Tax Cuts”

  1. Tweets that mention Donklephant » Blog Archive » Comparing Bush’s Tax Cuts vs. Obama’s Tax Cuts -- Topsy.com Says:

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  2. Chris Says:

    My question for you Justin is this: how does this help the plutocracy?

  3. Chris Says:

    2ND question: what kind of watch dog do you think the republicans are? I’m trying to think of a dog that has a bad haircut and smells of gun powder and crude oil….

  4. Amy Says:

    Why should the rich have to pay proportionally more than everyone else? I don’t understand that line of thinking. I’m asking because I’d really like to know what the Democrat view of this is.

  5. the Word Says:

    @Amy
    According to Warren Buffet they don’t. I think we are heading towards an oligarchy in this country. The gap between rich poor and middle class went to steroidal levels in the last couple of decades. You may believe it was hard work but do you really believe people are working harder now than they were (those at the top I mean) in say the 50′s or 60′s.

    With all of the jobs going overseas, they failed their country, their society and their fellow Americans but I don’t see much indication that they care. Profits over people is where I think we have headed and I think there is a need for an economy that asks is it good that we drown everyone but those at the top. Corporate salaries are at a level that are IMO an obscenity and all the while the US takes the risk off of those at the top while saying fend for yourself to everyone else. I’ve found that sometimes the surest predictor of unlimited income is what you are willing to do to your fellow man to get it. Of course there are exceptions. Not many in banking, brokerage and insurance. Their main goal is to take your money and turn it into their money. Giving them carte blanche was IMO a sure recipe for the disaster we encountered.

  6. Justin Gardner Says:

    Amy,

    Well, first off, the progressive taxation system has been proven to be the best driver for economic freedom for all. That means that you had a step ladder of taxation that increases the more money you make. So it’s an issue of basic fairness. If you make more, you can give more back into the system to make sure the social safety net, that has helped fund your rise to ridiculous wealth, remains intact. Because without government taking care of the infrastructure of this country and laying the groundwork, our economy wouldn’t be nearly as vibrant and prosperous and there would be less opportunity for folks to make ridiculous amounts of money.

    Basically, think of the government as the folks that lay the foundation for every business in existence…and then a business owner can come in and build on top of it. The stronger the foundation, the more likely that building can get bigger and bigger and bigger. And that foundation is made rock solid by tax dollars. So those at the top need to give more because they’re the ones who need the foundation to be the strongest in order for their businesses to continue to grow.

    See, many view those at the bottom as taking the most out of the system, but if America wasn’t as well put together and smoothly run (think of all of the utilities, roads, highway systems, mass transit, railways, etc.), then doing business in this country wouldn’t be nearly as efficient and therefore nearly as profitable. The problem is that business owners now feel entitled to this since it’s been such a well oiled machine for so long, and they don’t feel they need to put their fair share back into the pot to make sure we’re moving forward and not backward.

    Also, as mentioned in the article, many people who make a lot of money do so via their stock portfolio so they pay a significantly reduced rate on that income since it’s considered long term capital gains. So, for the rich on the income they do earn, taxing that at a higher rate is fair because they haven’t paid the tax rates that most folks pay on the vast majority of their income.

    The exception to this would be sports stars who actually make multi-million dollar salaries, but you’re talking about a handful of people there. And they’re also stars, so fame pays a personal tax that few of us will ever realize. But that’s a topic for a whole other post.

    The Republican talking points will tell you that the majority of these folks are small business owners. That’s bunk. Small business owners rarely make over 250K in income and that word is very important. Because if you’re a small business owner and you’re making that type of money, you’re raking in a ton of money in revenue and after expenditures (rent, loan payments, salaries for employees, basic business costs), the income that’s taxed is the money you pay yourself as a salary. So if somebody is paying themselves over $200K, well, they’re doing really good and can take the hit. But, again, that’s not the most likely scenario.

    Also, the Social Security tax rate is 6.2% and people are only taxed on that up to about $102K. So, when you raise somebody’s tax rate to 39.6%, the proposed rate for the highest earners, you can actually subtract that 6.2% on the income over $102K as a measure against everybody else since they rich aren’t paying it. Interesting, no?

    Hope that helps answer your question. If not, well, ask me some more questions and I’d be happy to answer if I have the time.

  7. gerryf Says:

    Amy,

    Specifically, what the Word is referring to, is that “proportionately” they pay less.

    MY PROFILE From The Times June 28, 2007

    Buffett blasts system that lets him pay less tax than secretaryTom Bawden in New York Warren Buffett, the third-richest man in the world, has criticised the US tax system for allowing him to pay a lower rate than his secretary and his cleaner.

    Speaking at a $4,600-a-seat fundraiser in New York for Senator Hillary Clinton, Mr Buffett, who is worth an estimated $52 billion (£26 billion), said: “The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.”

    Mr Buffett said that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent. Mr Buffett told his audience, which included John Mack, the chairman of Morgan Stanley, and Alan Patricof, the founder of the US branch of Apax Partners, that US government policy had accentuated a disparity of wealth that hurt the economy by stifling opportunity and motivation.

    It is a difficult concept to get your head around because we have been led to believe by the right wing noise box that just the opposite is true–after all, if the tax system is truly progressive, what you are saying would be true.

    The problem is that the tax code has been written, modified and twisted by the same people who benefit the most.

    Now, then, to answer your actual question as to why they should pay more proportionately than anyone else, I think you would find that most Democrats do not want that.

    Most Democrats would be happy if they paid the same proportion as the rest of us.

    However, just to address those who think they should pay proportionately more, some would argue that because these people proportionately benefit more from the shared resources of this country, they should pay more to continue benefiting from it and pay more to sustain it.

    Despite what people commonly believe, the overall economic health of this country has slowed as the disparity between the haves and the have nots (and have lesses) has grown.

    When a larger proportion of the country is doing well, the country as a whole does better. Our current system disproportionately benefits the already wealthy.

    So, if you don’t mind me asking, why do the Republicans think the rich should benefit proportionally more than everyone else?

    In the past, they might argue that they are the risk takers and by putting their wealth at risk, they should benefit from that. However, if you have been paying attention the past three decades, you will see that we have socialized risk but privatized reward.

    When Wall Street risked the financial health of the entire country, they used OUR money, lost it all, and gave themselves bonuses. The same occured with the auto companies (GM and Chrysler bailouts), and the energy companies (Enron), conglomerates like Tyco. When it came time to pay taxes, they paid proprotionately LESS.

    Why is it OK that these people benefitted from all this country offered, but didn’t pay their fair share? Not MORE, but even proportionately THE SAME?

    I know you will never buy the argument they should pay more because they benefit more and I am OK with that. However, if you are not in that top 3 percent, don’t be such a tool for them that you buy the lie that they are paying proportionatly more.

    They are not. If you believe that, they are playing you for a sucker.

  8. Terry Ott Says:

    Justin:
    The answer to Amy’s question is very well done. Thank you for taking time to lay it out in a compelling way, and in layman’s language.

    I have a question about the graphic representation, though, starting with use of the term “tax cut”. “Cut” from what level? This is not referenced unless I missed it.

    It would also be helpful to include two more columns, showing the “typical” income tax dollars paid by people in that income category under each of the two scenarios.

    I would also like your comment on one point I wonder about. People at higher income levels often do not spend anywhere close to all of their income. They invest it. Investment fuels growth of productive enterprises, finances the development of new technologies, of research on new products and services (including medicine as well as consumer goods, technology, energy, transportation, and so on. Does it not?

    In recent years, I have invested in the expansion of a company in the energy sector by loaning it money. The “payback” depends on the success of the venture for which I (along with dozens of others) provided funding. If my tax burden had been higher during the past decade, I could not have afforded to lend that amount. Some amount, yes, but probably not as much without putting my own financial position in serious jeopardy. I have not nearly recouped what I loaned, and maybe I never will, because it is not clear the company will succeed or even survive. But the point is, I was able to provide funding that a typical bank would not have because of the risks. And the company bought equipment and secured leases and land, and added good paying technical and operations jobs. Higher taxation MUST, seems to me, crowd out some private sector investment activity.

    I’m not arguing for any particular tax formulae. There must be “optimum” taxation levels re: overall societal impact, though I don’t know what those might be (does anyone? Seems to be a trial and error game). Taxes have a psychological impact that makes it hard to forecast what the impact of an increase or decrease might be, in my opinion. I CAN assure you, though, that when the tax pendulum swings in the direction of “higher”, I start reducing my consumption habits, deferring major expenditures, investing more cautiously — it’s a kind of financial hunkering down and even hibernating until the climate for business and entrepreneurial venturing seems hospitable. Corporations tend to do the same, I think.

  9. silverball Says:

    well, terry ott….and since you are in a position to loan some of your INVESTMENT type of income you earn…and reap the tax benfits from it….please also clearly explain, because, for SOME reason, you “forgot” to mention it, that if your investment does pay off…it will be at a much higher return than if you had your $$ in the bank…its the ol’ “risk vs. reward” situation….or weren’t you aware of that???….so, you don’t think you should pay even a marginally higher rate as a member of the top 1-3% of the population….???…gee, “sorry” to hear that you’ve got it pretty good, but, wow, might have to cut back on the “consumption habits”, “major expenditures” (personal or business?) and “investing more cautiously”???…97-99% of us wish we had your “problems”…..oh, and thanx for “sharing” your dilemma…i know, its “dog-eat-dog” out there….for some of us…..

  10. kagerato Says:

    @Terry Ott:

    Income tax rates are being compared to where they were under Clinton. In other words, the Democratic policy is keep even lower taxes than Clinton’s levels for the middle class, and the Republican policy is to keep Bush’s tax levels.

    The problem is precisely that wealthy individuals and corporations have not invested in growth, development, and infrastructure over the past thirty years. If they had, we wouldn’t have faced a catastrophic failure of the financial markets in particular. Effectively, the rich made speculative bets on an ever-increasing, ever-rising price of residential and commercial real estate through misleading and largely meaningless contracts called derivatives. Then, when the massive risk behind those bets turned out to be justified (as any reasonable observer could have determined), the public socialized virtually the entire loss. That amounts to a massive transfer of wealth from the bottom 90% to the top 10%.

    The wealthy have been gaming the system is many other ways. Any and all spending on foreign war has diverted money away from spending on domestic infrastructure projects and social welfare. Direct subsidies to corporations, including agribusiness, oil, coal, and the automotive industry have distorted the market and crushed the viability of small competitors.

    The low capital gains tax has already been mentioned. The very wealthy make over fifty percent of their income from that low rate.

    High marginal income tax rates are in the best interest of the country as a whole. Unless you think that the country was some kind of miserable hell hole under FDR and Eisenhower? The highest marginal rates were over 70% then.

    The issue is simple enough that it is baffling why people do not get this: high income tax rates encourage spending, low income tax rates encourage saving. Are some just ignorant of the fact that expenses are not taxed? No small business is going to fail because they couldn’t buy the new machines they needed, or they couldn’t pay their workers enough. Those are expenses. They are not subject to income tax. (Sales tax, on the other hand…)

    Keeping the highest brackets at high rates has a variety of useful effects at growing the middle class. It helps raise government revenue, which either reduces the deficit or increases spending depending on what Congress decides to do with it. (Again, it’s important that spending priorities be wise — spending on war or subsidies is merely waste.) It encourages the wealthy to spend as individuals, driving the economy. Further, it has notable indirect effects on businesses. When the top marginal tax brackets are high, profiteering is discouraged. Very large profits will simply be subject to a very large tax. Most business leaders are not stupid, of course. Instead of paying high taxes, companies will invest in their viability and competitiveness: their workers, their tools and materials, their management processes. In short, they have a strong incentive to compete on the quality of their products rather than on price — as lowering prices won’t improve their profitability by much.

    We can see quite clearly that companies today are not doing this. Collectively, they’re holding onto more than a trillion dollars in surplus cash. That’s money which could be used to hire new employees, or buy tools and materials from other companies. Instead it just sits there.

    There’s always the problem of tax evasion; it’s been with us as long as there have been taxes. (That is to say, forever.) The solution to tax evasion is not to continuously lower tax rates (which would, naturally, eventually lead to a lack of taxes entirely). It is to create enforcement policies which work soundly. Controlling corporate tax evasion within the country is pretty simple if the government really wants to do it. Any corporation which evades taxes for a period of X (say, three years) or for a sum greater than Y (say, $1,000,000) has its corporate charter revoked. Simple and effective.

    These days a lot of companies have decided to evade taxes by off-shoring some of their operations. In effect, they launder money through other countries. This can be solved by more than one method. One means is to simply increase international cooperation and go after them in the remote countries. Another is to deny them business, and easy operation, inside the United States by freezing up assets and accounts which are inside the U.S. Tax evasion has become as severe a problem as it is merely because government policy has been to largely ignore it.

  11. kranky kritter Says:

    Conceptually, I think there’s plenty to object to here, but I’m not in the mood for my usual chautauqua length post. I’ll just focus on the first paragraph:

    I’ve discovered, through the course of just asking around, that many folks don’t realize that they’re taxed at different levels. Many think that if they make over a certain amount of money, all of their money is taxed at that rate.

    That much I agree with, by and large. Although I will add, with confidence, that most Americans who have actually done their taxes past the EZ form and who have reached the 2nd bracket do understand how brackets work.

    That’s why you heard all that talk about taxes being a disincentive to making more money, which is obviously nuts

    It’s quite true that higher taxes in some brackets are less of a disincentive as actually applied than they would be if applied in the way that you claim “the average taxpayer” believes.

    But #1, you’ve offered no data which tells us how big a group these allegedly confused folks comprise. And #2, you haven’t shown why higher taxes in brackets are NOT a disincentive. I have personal friends that I know for a fact have made personal decisions based on avoiding higher tax brackets. So I know that disincentives exist. The only question is their extent.

    and was meant to confuse the average taxpayer who doesn’t understand how our system works.

    That’s just paranoia. Disincentives exist. I’ve seen them, and I bet they can even be demonstrated empirically. Granted, not by me, I’m not an economist.

    I’ll leave the rest unchallenged. Life is too short. It’s a nice day.

  12. Justin Gardner Says:

    Terry, this was your question…

    I would also like your comment on one point I wonder about. People at higher income levels often do not spend anywhere close to all of their income. They invest it. Investment fuels growth of productive enterprises, finances the development of new technologies, of research on new products and services (including medicine as well as consumer goods, technology, energy, transportation, and so on. Does it not?

    Right, but the basic want of wealth will ALWAYS propel people to invest. So I go back to the overarching point I made in my comment…

    Taxes go to the government, which then invests in infrastructure of some sort. Private enterprise might ultimately end up building pieces of the infrastructure, but they’re not in charge of keeping the entire system going. And since you don’t want the growth of private enterprise to contract, you need to funnel more money to the government so they can expand upon and improve the infrastructure that supports it all. Because, if they don’t, it will fall behind, start to crumble and doing business here becomes harder to do, less profitable, etc.

    Also, oversight and policing is a key element, because good regulations make sure companies don’t get so big and powerful that they’re “too big to fail” (see 2008/2009 and The Great Depression) or they severely abuse an unregulated market (see Enron/et al). So that policing mechanism needs to be funded as well.

    Basically, there wouldn’t be a “free” market if government didn’t exist and act as the foundation and the policing for the entire system. And, as mentioned, the bigger that market gets, the bigger government needs to get. It’s the ying and yang of economic growth.

    Some will try to convince you that government doesn’t need to grow to match business growth, that businesses can just take care of it themselves. Well, those people need to go check out any Native American reservations to see what a lack of good government and solid infrastructure does to a society. Those are the true “free” enterprise zones in America and they’re wastelands.

    By the way…here’s some more info about the true tax rate the wealthiest 1% pay…

    According to Congressional Budget Office estimates,[12] the federal tax system is a progressive tax for all but the richest 1% of Americans. According to the study, the lowest earning 20% of Americans (24.1 million households earning an average of $15,900 in 2005) paid an effective federal tax rate of 3.9%, when taking into account income tax, social insurance tax, and excise tax. The highest earning 5% (5.8 million households earning an average of $520,200 in 2005) paid an effective federal tax rate of 21.5%. However, the highest earning 1% of Americans (1.1 million households earning an average of $1,558,500 in 2005) paid an “effective” federal tax rate of 21.3%.

    So, as you can see, we need to restore fairness to our system. It makes absolutely no sense why the folks at the top aren’t paying the most.

  13. Eric J. Bowman Says:

    The answer to Amy’s question is in Thomas Paine and other writings of the Founders regarding progressive taxation. Simply put, the rich utilize proportionally more of the public commons than the poor; it is in fact the public commons which allows the rich to accumulate wealth. Progressive taxation is all about everyone paying their fair share to maintain the public commons, for the purpose of having a level playing field for competition.

  14. Lindsay Says:

    Kudos to all of you above. I’ve never seen so much intelligent, factual, and informative comments/responses on any site, ever. Thanks, I enjoyed and learned from reading them all. Thanks.

  15. Justin Gardner Says:

    Lindsay,

    Really appreciate that comment. That’s what we’re here for…to provide an oasis of knowledge in the vast desert of partisan hackery. Do visit our site again and be sure to tell your friends about us. We always love talking to new folks.

    Eric,

    Agreed, and thanks for the comment.

    Obviously the level playing field is the ideal, but we don’t have that right now in America. Why? Because we’ve bought into the “free” market system so much that many believe that private business is the greatest expression of freedom. Of course it’s not since corporations can set all sorts of crazy rules and can implode at any time, as is evidenced by our recent history.

    The notable exception are emerging markets. They reveal themselves and a few power players will ultimately take advantage. In the last 30 years it has been the personal computer market and the internet market and the competition has become decelerated since technology firms line in cyberspace and only have to worry about a virtual infrastructure made out of code, not manufacturing. And even then you’ve had the government wondering if the top dogs in those fields (Microsoft and Google, respectively) should have all the power.

    In the case of Microsoft, the government won. In Google, we have yet to determine whether or not they’re too big to fail. But imagine a world without Google if they were mismanaged. Not good, especially since so many rely on Google to make their living. Of course some other competitor would pick up the slack, but this is why we need a safety net…to address the reality of the markets that reveal themselves and to make sure we don’t get screwed.

    Again, governance is vitality important, and ignore anybody who tells you differently.

  16. Terry Ott Says:

    I agree with virtually all you say here, Justin. It’s similar to your “spot on” reply to Amy, with the helpful add-on about effective tax rates. Your statement “the basic want of wealth will ALWAYS propel people to invest” seems correct. But wealth is limited by “excessive” (note that word) taxation, so it seems to me that people are able to invest less when they are taxed more. “Excessive” means, to me, more than we need in order to improve society to the extent government can do that. The counter, I suppose, is that the tax dollars are “invested” in infrastructure and social priorities, theoretically at least.

    Are you saying we do not spend enough money via government, thus making it necessary to take more from those who earn it by working and innovating and providing goods and services for customers, and (yes) investing it as shareholders or lenders? And by making the economy more robust, provided it is invested wisely (big caveat, based on the track record I guess)? It has seemed to me, albeit only intuitively, there is plenty of taxation and collection of fees of all kinds to get done what we need as a society re: infrastructure, public health and safety, education, law enforcement and the justice system, regulation and all the things we now expect of government. Isn’t government the biggest growth industry going?

    We spend a lot on a shockingly expensive military, and I think we waste of lot via ridiculously inefficient and ineffective agencies and bureaus and what would be termed in the private sector “overhead”, which the private sector has been squeezing out and shedding for decades in an effort to be competitive globally. Not to mention thousands of public programs that have myriad unintended consequences and even work at cross purposes. The “cross purposes” syndrome happens (in both the public and private sectors) when we have no clear overarching priorities and simply throw money at whatever feels good or, in the case of political shenanigans, makes some special interest “loyal” to the apparent benefactor. These are my impressions, and I think a root cause of the pushback against tax increases comes from the experience many of us have had of belt-tightening beyond the point where it hurts in running businesses. And not seeing anything resembling that discipline on the government side. I worked in DC as an agency intern. It was very long ago, but I can’t get the bad taste out of my mouth in terms of how things were “run” (or not run, mostly). Those impressions come back when I write big checks to Uncle.

    At the same time that I agree with all you say about the desirability of improved infrastructure, the critically important need for effective regulation, and (I would add) a world-class public education system, I feel my eyebrow arching as the thought forms, “and these things are going to be delivered by WHOM, did you say?” Budgets and headcount and agencies in all corners of the federal government grew even under Bush, in addition to all the war-making costs — and what progress did we make then, or before then, or since then for that matter?

    There’s no doubt we were misguided to allow/promote/engage in so much speculative investment in real estate and financial products labeled “Prime” that turned out to be “Hog Slop”. There is a lot of blame justifiably directed in many directions on that near-death fiasco. So were we misguided to chase ethereal and illogical potential returns in the high tech sector before THAT bubble burst. But I would come back and ask, how much good has been done by sinking more money into the public sector? It seems there is never “enough” and it’s hard to argue that “more” has meant improvement in nearly anything. Am I off base here? That’s a sincere question.

    On a personal note, I sometimes wish I were still a workaholic with a crushing schedule and more demands than I had time for by about 50% on a good day. For 30 years I was so immersed in working myself into full scale burnout that all this public policy and political and government stuff wasn’t even on my radar screen in a significant way. Now that I am trying to pay attention, it has made me very discouraged. Exhaustion, in a sense, was bliss.

  17. Terry Ott Says:

    Kagerato:

    Thank you for your thoughtful reply. Lots of insight in there. Frankly, I somehow missed reading it until I had finished off my treatise, just above.

    A particularly helpful comment (humor here) was your pointing out the wealth transfer from the bottom 90% to the top 10% by virtue of socializing the losses from our financial sector’s demise. If there WAS any question about what side of that line I am residing on, there certainly is not any more.

  18. Terry Ott Says:

    Silverball: Something I said seems to have riled you up. You, in turn, made a whole series of misguided assumptions.

    The investment-type loan came out of my profit-sharing via the company I retired from as a co-owner. I had no salary, per se. Some years made very little, other years made quite a bit based on company results and what the business needed done. Significant income was taxed significantly; I felt fortunate to be able to pay it, and (b) it was never my goal to make a lot of $$. When high income happened it was because I was a producing player on a very outstanding team of people all pulling in the same direction.

    While working, I left all that was allowed as capital in our business by virtue of rules set up so no one could have too much control. We geared our lifestyle to allow that. Best performance, I believe, comes from being fully committed financially and in every other way — especially exceeding client expectations.

    If the risky loan does pay off off someday, it might or might not be a better deal than money in a bank. But, any returns above my principal will be taxed as current income I assume. Never thought much about that. Whatever rules apply. I don’t play tax games, period. Never have had any interaction with the IRS.

    You said, “so, you don’t think you should pay even a marginally higher rate as a member of the top 1-3% of the population….???” It’s amusing that you think I would be among some elite % of the population. And I never said anything about “even a marginally higher rate” or objecting to any tax rate for that matter. I did say that if I had been taxed more, I would then have have less to invest somewhere That’s just fact. I did wonder at what point more taxation is less good for society in a general sense than more private investment is. Because there IS a trade off.

    In my planning, I estimate tax burdens, city/county property, state, and federal will rise about 50% in the next few years. Makes a difference when you take that into account and have no real potential for increasing your income.

    Some words bothered you I guess….

    “Consumption habits” — travel for example; when things are tight you don’t. You may or may not feel OK about landscape or household improvements (recent examples). Considering where I think we are headed with tax burdens (property taxes especially) and our investments for retirement, I probably shouldn’t have bought new furniture 3 years ago (hindsight). We eat out about half as often now. I don’t go to car washes.

    “Major expenditures” — It has to do with when and if one might buy a new car, e.g. It can wait, and maybe it’s “never”. It has to do with paying tuition for grandchildren which we won’t be doing in full as we had for a few years before our retirement savings took a hit.

    “Investing more cautiously” — means getting out of stocks and into more conservative vehicles and perhaps annuities.

    “Dilemma”? — I have no dilemma; where did you get the idea I did?

    Nothing will make you feel better, I suppose, about other people succeeding , but best of luck to you. Become a top 1%-er or something, and come back to tell me how it feels.

  19. Steve Roth Says:

    Terry Ott: “People at higher income levels often do not spend anywhere close to all of their income. They invest it. Investment fuels growth of productive enterprises…” etc. etc.

    This argument is rooted in a basic fallacy: if you tax investment, people will invest less. Supply and demand, right? Raise the price, quantity goes down.

    But here’s the missing piece: unlike other “goods,” there is no alternative good to investment.

    If you have a million dollars and want to earn income on it, you have to invest it. There’s no place else to go.

    Actually, there is an alternative: spending/consumption. But I don ‘t think anyone will want to argue that if you tax investment income at higher rates, so investors have less income, they’re going to spend *more.*

  20. Terry Ott Says:

    Steve Roth: My point is not that “if you tax investment people will invest less” as opposed to doing something else with it. (More on that later). But rather, if you tax income and/or investment more, people will have less money to invest in the first place. Let’s say you tax capital gains at 40% rather than 15%, for example. If a person has $100,000 in capital gains, s/he is left with either $60,000 or $85,000 to reinvest after paying taxes. The point is, the government is taking either $40,000 or $15,000 out of the bucket of money the person has left to invest elsewhere.

    You say, “unlike other ‘goods,’ there is no alternative good to investment.” Well, yes there is. Two, in fact. One alternative to investing it privately is to have the money taken and spent by government. The other is NOT to invest it because the after-tax return is not thought to be adequate for the risk involved. In that instance, the person either spends more of it, or gives more away, usually to tax-deductible causes or entities.

    I’m not saying any of this is inherently a good thing or a bad thing. What I AM saying is that when someone pays Uncle $40,000 out of their $100,000 capital gain, they are likely to ask: will that $40,000 be spent wisely by the government? And If he/she is retired and living on the capital gains income, then his/her spending is going to reduce substantially, especially considering increased in property taxes on top of the capital gains tax.

    I recognize the fairness question related to capital gains tax rates being lower, for high income people, than taxes on income. One thing to keep in mind: much of what one manages to save/invest for retirement was done with “after tax” dollars; i.e. what was left over after paying income tax on the money in the first place.

  21. Amy Says:

    I’m not a “drive-by” poster. :-) Sorry I didn’t get back to this sooner.
    Wow! I really appreciate all of the well-thought out replies. Most of the points made a lot of sense. I never really thought about how the rich do benefit from the common resources more than most of us. In light of that, it seems that the middle class benefit the least from gov’t. I guess I just have been focusing on our taxes going to so many social programs (that can’t be sustained, I might add).
    I’m not convinced that growing gov’t is the way to alleviate problems. We are at an unsustainable rate of gov’t growth. How can MORE taxes be the answer?

  22. Amy Says:

    I just wanted to say thanks again for the thought provoking replies. I’m re-reading them now.

  23. theWord Says:

    If you’re kids were getting shot on the way to substandard schools and were sleeping in cast iron tubs at night to be safe from stray bullets and you were getting pulled over for no reason other than the color of your skin, you might think you were paying a high cost for those social programs.

    We do need to figure out solutions, we do need to watch the budget but I’ve yet to see any solutions presented that are not more of what precisely got us into this mess. The criminals who do the most damage to our society and have the power to take us all down with them aren’t the people at the bottom, they are the people at the top. They must just howl at night at how easy it is to say “No, over there” and get everyone to go back to ignoring them.

    I have never figured out how one guy at the bottom attracts such attention when what they do is negligible in my life while the guy at the top can screw tens of thousands (or currently millions), rarely if ever go to jail and has the rules of the game written almost exclusively for their benefit and no one seems to notice. Ken Lay screwed the entire state of California among others. Bush flew around on the company plane. Can you imagine if Willie the Wimp was driving Obama around (I know he’s dead now) Can you imagine if suburban white kids were the main target of the drug laws?

    So how do we fix it?

  24. theWord Says:

    your of course. Palin moment.

  25. Steve Roth Says:

    Terry Ott:
    >if you tax income and/or investment more, people will have less money to invest

    This is obviously true. Arithmetic lesson not necessary.

    Brings you straight to the fundamental question: will government spending/investment/deficit reduction result in greater growth than the private “investment.”

    First understand:

    1. The common usage “investment” (savings accounts, stocks, bonds, CDOs) does not equal “capital investment” or in NIPA terms, “private fixed investment.” The former is call “saving.”

    2. Increases in private savings have a very loose correlation with private fixed investment (except over the very long term — the economy gets bigger, so both rise along with it).

    At this moment, the banks and corporations are sitting on truly oceanic quantities of cash — far above and beyond anything ever seen in history — because they can’t find enough/any truly productive (read: potentially profitable) investments.

    3. They can’t find those investments — and businesses aren’t asking for loans — because the demand isn’t there for the companies’ goods and services.

    When they’re surveyed, private business say consistently and unequivocally — before, during, and after the so-called “credit crunch” — that investment capital and lending is *the very last thing* on their list of business constraints. (What’s number-one on their list these days? Pretty obvious: lack of demand.)

    Increasing rich people’s savings will have no effect on productive capacity or production; capacity is already far beyond current utilization. The *last* thing businesses are doing is borrowing to increase that capacity.

    >One alternative to investing it privately is to have the money taken and spent by government.

    Uh, that’s not exactly an alternative for anyone I’ve ever heard of.

    “Gee, which shall I do with my money right now — invest it, or give it to the government?” Get real.

    And government can — like private companies and individuals — either spend it or invest it in things like education and infrastructure.

    Those two — as every economist agrees — deliver *terrific* long-term ROI (especially when the economy has been starved of them, as it has been over the thirty years of Reaganomics), and they deliver it throughout the population.

    But thirty years of starve the beast has made those investments increasingly impossible (drowned the baby in the bathtub with the bathwater), based on the belief that — of course — private investors will invest it better.

    But — see “cash balances,” above — that just ain’t so.

    There’s a massive surplus of private investment capital available, and a massive shortage of funds for education and infrastructure. Be smart to shift some resources, no?

    >The other is NOT to invest it because the after-tax return is not thought to be adequate for the risk involved.

    Yes, people can stuff their money in mattresses. A reasonable investment strategy during deflation, or when deflation seems imminent. But at all other times, people with money only have one option: invest.

    In either case, spending doesn’t increase their wealth. It’s not an alternative.

    >In that instance, the person either spends more of it, or gives more away, usually to tax-deductible causes or entities.

    See your next point:

    > If he/she is retired and living on the capital gains income, then his/her spending is going to reduce substantially, especially considering increased in property taxes on top of the capital gains tax.

    So which is it: when you tax investment income, so investors have less income, does their spending and charitable giving increase or decrease?

    You’ve said both within a paragraph of each other. Which you gonna choose?

  26. Amy Says:

    gerryf, you asked: “So, if you don’t mind me asking, why do the Republicans think the rich should benefit proportionally more than everyone else?”

    While I can’t really claim to speak for Republicans (just a stay at home mom here), I doubt that any Republican would make the above statement.

    I am trying to digest the comments here, but I can’t get around the fact that we NEED the wealthy to be wealthy. They pay more sales tax, more capital gains tax, they hire loads and loads of people, they are consumers and stimulate the economy. Being wealthy may be motivated by greed, but you can be greedy and poor, too, wanting someone else to have less so that you can have more.

    Unfortunately, I’ve lost confidence in the Republicans AND the Democrats to handle our money well.

  27. Tax Lawyer Says:

    This comment is simply uninformed: “People at higher income levels often do not spend anywhere close to all of their income. They invest it. Investment fuels growth of productive enterprises, finances the development of new technologies, of research on new products and services (including medicine as well as consumer goods, technology, energy, transportation, and so on. Does it not?”

    95% of capital gains are from one person selling publicly traded stocks or mutual funds to another. Not a DIME goes into new ventures–it is all pure speculation. Not to mention all of the people who invest in mutual funds and foreign companies, which actually damage the US workers due to offshoring. I know, I do these people’s tax returns.

    What we need is to tax all income as earned income, including capital gains, and even to charge payroll taxes on capital gains–so long as the investment results from one stockholder buying stock from another. On the other hand, when someone invests DIRECTLY into a start-up for expansion, I would be okay in completely eliminating any taxes on their eventual cashing in on success.

    This would re-invigorate new businesses or provide capital for existing business expansion, while taxing idle speculation just like working people are taxed.

  28. Justin Gardner Says:

    Tax Lawyer…

    What we need is to tax all income as earned income, including capital gains, and even to charge payroll taxes on capital gains–so long as the investment results from one stockholder buying stock from another. On the other hand, when someone invests DIRECTLY into a start-up for expansion, I would be okay in completely eliminating any taxes on their eventual cashing in on success.

    This is an interesting proposal, but I don’t know that I’d say that it would be fair to eliminate all taxes. After all, for those startups that really hit (Google), you’d be letting people make billions without taxing it. Perhaps a lower rate, sure, but they’ll be making plenty if the company is a Google.

    Also, many investors get tax breaks from states for investing in startups, so we’re essentially paying rich folks to speculate. Not necessarily the fairest situation.

  29. Terry Ott Says:

    Tax Lawyer:
    First off, I admire you for being able to do that work. I am quite sure that in a short time I would go absolutely bonkers.

    I appreciate the points you made.

    Why is it that there is a strong sentiment saying, “the worst thing government can do in a recession is increase taxes”? Is this wrong headed? I suppose the statement is supported by acknowledging that we need demand to increase across the board, and if taxation increases there is less money for private individuals to spend … and thus less demand for consumer goods and services.

    If you care to, I would like your reaction to two things.

    1. I start from the assumption that, when needed, government “stimulus” should be dramatic, direct, temporary, and its outcomes should be measurable, to see if it is working. If so, then what better stimulus could there be than suspending all tax collection for a set period which is essentially giving “unexpected” money to people to spend? Is the problem that too many of the “found dollars” would simply be used to pay down individuals’ debts — credit cards, mortgages, loans, etc — or put into savings and investment products, and thus not result in enough incremental spending?

    2. It seems to me that corporations, with their financial gurus and lawyers and tax experts, will always be one step ahead of the government in terms of strategies to avoid tax obligations. So why not do away with corporate income taxes and instead raise the rates on capital gains accordingly?

  30. NotATaxLawyer Says:

    @Terry
    “Why is it that there is a strong sentiment saying, “the worst thing government can do in a recession is increase taxes”?”

    Take a look at the bottom of the graphic above. See the HUGE circle on the right? Compare it to the smaller $6-7K circle on the left. Subtract the smaller from the bigger number. The result is the incentive.

    The reason why you wouldn’t “want to increase taxes in a great recession” is because you want to increase aggregate demand. Taking money away from families reduces their spending. But the thing is, that is if the taxes are not recycled into new spending. Right now that big circle is being “saved” not being spent. It would be easy to find more stimulative uses.

    What you don’t want to do is increase taxes and reduce the federal deficit. But the Feds could easily find good foundational infrastructure to invest in if there wasn’t a newly discovered, hysterical fear of the deficit. (and the Senate wasn’t run by really low density states — I’m looking at you North Dakota and Montana)

  31. Donklephant » Blog Archive » Private Sector Job Growth In 2008, 2009, 2010 Says:

    […] in income every year and their hit would be VERY minimal. For a refresher, let’s go back to the chart we posted a few weeks […]

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