Not surprisingly, spending is also driven to large extent by influence-peddling and corruption. The feeding of special interest groups keeps the money and power flowing to the Hill.

Under this scheme, changing the rate wouldn’t change the payoffs.

I guess it would if there was also a transactional cost.

If you truly believe that our system can’t be made more efficient, then yes, repealing Obamacare, raising the retirement age, and capping spending growth irrespective of cost growth (i.e. vouchers) make perfect sense. But if you look around, we’re paying vastly more than other nations for significantly worse outcomes. So I question the premise that pain must be involved to reduce spending. I don’t see why we can’t improve quality while reducing spending, and I see Obamacare as a stake in the ground towards doing exactly that.

1. I don’t hate the GOP by any means. I just don’t trust this particular crop. I would love to see and would support a conservative party that actually demonstrated fiscal responsibility. I liked Bush Sr. This bunch – fiscally responsible? It’s a complete and utter mind-boggling joke.
2. Do I completely trust the Dems? Not completely, but generally, yes. They have given us a lot of reasons- Clinton’s surplus chief among them. I think Obama is honest and I think in general they have a fealty to arithmetic.
3. Couldn’t agree more with you that we have to really, really, truly have to address entitlement spending. That and military budgets are the biggest turkeys in the room. So, we can’t just kick the can. But I’ll go back to “trust”. We just came off of a year of listening to the leader of the GOP propose his solutions. He wanted to give the military a trillion dollars more than they were asking for. Not responsible. The GOP has just made a counter offer to Obama’s proposal with a tax CUT for the wealthy. Not responsible. Vouchers for Medicare, Privatize S.S. Please. So, if it’s incumbent on me to read through the Simpson Bowles transcripts to find some responsible proposals from the GOP, then we need to be talking about what an abysmal job they are doing getting their message of truth-worthiness and mathematical accuracy out to swayable moderate-information voters like me. Oh, right, they just lost a Pres. election with 8% unemployment. So, yeah, they’re message team must be pretty bad.

The Dem’s/Obama’s insistence on rate increases when the same amount of revenue can be raised (and from the same upper-income sources!) by limiting deductions is somewhat puzzling.

That is puzzling Tully, considering these two somewhat conflicting statements:

“What we’ve said was give us $1.2 trillion in additional revenues, which could be accomplished without hiking tax rates, but could simply be accomplished by eliminating loopholes, eliminating some deductions, and engaging in a tax reform process that could have lowered rates generally while broadening the base.”
-Obama, July 2011

“And unfortunately, the speaker’s proposal right now is still out of balance. You know, he talks, for example, about $800 billion worth of revenues, but he says he’s going to do that by lowering rates. And when you look at the math, it doesn’t work.”
-Obama, December 2012

So we could raise $1.2 trillion a year ago by closing loopholes and limiting deductions, but we can’t raise $800 billion a year later by doing the same thing? Puzzling indeed. I’m just waiting for the folks over at MSNBC to rehash that quote…

The Dem’s/Obama’s insistence on rate increases when the same amount of revenue can be raised (and from the same upper-income sources!) by limiting deductions is somewhat puzzling. Why, one would almost think it had more to do with partisan politics and hidden agendas than with actually bringing government finances back into balance…

And pardon my noticing, but why are the Congressional Dems standing away from Obama and forcing Congressional Republicans to negotiate with the White House, when it is the Dems in Congress who are supposed to be doing the negotiating? Because, you know, it’s their job?

Any of those cuts will also conceivably involve fewer available resources for everyday people, which effects both them and people downstream from theie now reduced spending. It’s not reasonable to simply presume that republicans have no appreciation of this.

The notion that the wealthiest can afford to contribute more in order to bridge the gap is popular. And I don’t disagree on principle.

But everyone needs to understand that the best we can actually do is to ask the wealthiest to contribute more in order to be one fraction of bridging the gap. The nature of our debt is that the primary problem is overspending, and growth in that overspending, primarily related to medicare and social security.

In both these cases, evolving demographics (basically, people living longer and consuming more resources) is driving these trends. They operate a orders of magnitude that are higher than marginal tax rates. We just can’t simply keep taxing rich people more to pay for the extra social security and medicare money we’ll need as life expectancy goes 78.79.,80, 981, 82 … . The number just wont add up. There aren’t enough wealthy people or enough wealth to finance it. The costs are too big and the trends too powerful.

That means that spending reductions and program reforms are necessary. Hate the GOP all you want. I’m no fan. But for a long time, I’ve watched what congress does as a group. Every time revenue-expenditure gaps come into conversation, they are followed by agreements which raise taxes while promising to eventually make cuts. And then the cuts never happen, because real cuts will cause real pain.

We’re at the point where the forecast calls for real, honest to goodness, unavoidable pain. Not theoretical pain, not future sacrifice, not kicking the can. Both parties are making this an ideological issue and framing it along partisan lines. But it’s a math issue. And that become more obvious with every passing day.

The real question is this: will enough people understand that it’s a math issue in time for us to solve it before the solution becomes excruciatingly painful. And the answer seems to be “probably not.”

Since the 70′s and 80′s conservatives have tried to reduce the size of government by depriving it of revenue. This has done very little to slow the growth of government, and instead has blown up the deficit.

But what if Obama is trying to do the exact opposite? What if your aim is to grow the size of government, and redistribute wealth? It seems that spending on your priorities, putting it on credit, and creating a debt crisis that must…MUST be solved with more “revenues” would be a very effective way of doing that.

So Obama has racked up trillion dollar deficits every year – mostly to democratic constituencies (the stimulus is a perfect example of this) – and now that the bill is due, who should pay? Why the “rich,” of course. And conveniently, republican constituents.

Couldn’t agree more. But it’s only been since this last election that the GOP has even hinted that they would be willing to take a little “pain”. Until recently Grover Norquist’s grip has been unflappable.

As I’ve said, I would be reasonably happy with Simpson-Bowles, or even the fiscal cliff. Either would be a huge improvement over the current trend. The GOP counter-offer is not unreasonable. Obama’s “offer” is worse than the DOA budgets he’s sent to the Senate the last few years, none of which could get a single YES vote from his own party. Indeed, t’s worse than what they offered (and the Dem-controlled Senate soundly rejected) just last year. (If I had to guess at the White House’s response to the counter-offer, I would bet on ramped-up demagoguery with no real changes to their proposal.)

And I repeat: No matter what we do that moves towards solving the problem it will have negative impacts that affect everyone. Pain will be involved — for everyone. There is no free lunch. There is no magic wand. But if we do not rein in the federal government, the pain will be much much deeper and the only “resolution” will come about through economic collapse or near-collapse. For how bad that could get, just look around Europe and South/Central America.

My goodness, if there are going to be cuts, lets cut in the right places.

As I’ve argued for years, when you advocate a policy you own ALL of the predictable results of said policy, not just the ones you want. Head-in-sand denial of the facts does not produce ideal results. To grab an example froma totally unrelated subject, I have yet to hear an anti-abortionist admit that a near-complete legal ban on abortions will not have some very severe and predictable adverse consequences, as are easily seen in other nations that have such bans. As far as they’re concerned those utterly certain adverse consequences simply don’t exist, or are somehow not their responsibility and can therefore be ignored in the name of righteousness.

It’s also simple and true that if tax changes adversely effect you ability to make money, you’ll adapt by making different choices.

Bingo. As Buffet has consistently done throughout his investing career, making his current rationalization pure unadulterated BS. There can be valid reasons to support such a policy, and they’re open to factual debate. But his “it won’t change investor behavior” line is 100% Krakatoa-grade hot flowing crapola, and Buffet knows it.

The mathematical truth is that to achieve real deficit reduction here in the real world without major bad consequences, there must be some combination of both revenue increases and spending reduction. We simply cannot sustain our current spending levels (much less the much greater levels that the O admin has demanded and our current entitlement structure dictates) without taxing the entire income ladder down through at least the middle class AND restraining spending growth to levels lower than GDP growth. These are mathematical facts.

Obama’s own deficit reduction commision, Simpson-Bowles, detailed such a plan, it received bipartisan praise in Congress, and the administration and the Congressional Dem leadership wanted nothing to do with it. The “fiscal cliff” would actually be a huge step in the correct direction, and despite the short-term pain would in the long run much less destructive of our economy than the admin’s demands and current path.

The idea that we can somehow get out of our current predicament by taxing “the rich” and continuing to spend in ways that would make drunken sailors blush while not taxing the holy hell out of everyone else as well is pure fairy-tale thinking. Personally, I would be delighted to pay Clinton-era tax rates if they came with Clinton-era spending levels.

There are no magic wands. There is no pain-free path out of the spending trap. No matter what we do it will hurt. The question is, do we want that pain to lead to improvement, or farther downhill?

I think taxes should probably be a little bit higher, but the argument doesn’t capture all of it. If there’s an investment that you project will go bust 90% of the time, but return 12x 10% of the time, it makes triple your money on average with no taxes.

Say you make 10 investments of $100 each.

Nine go bust. You get $0 for them.

One returns $1,200.

So you made a great return.

Now, imagine the tax rate is 30%.

Now when you’re returned $1,200, $1,100 is taxed at 30%.

That’s $330 in tax.

So $1,200 – $330 = $870.

So this kind of risky investment now loses money because it’s taxed when it gains, but you’re not paid back by the government when it loses.

That means some riskier things don’t get funded, even though they could be good — genetics companies, for instance, would be highly risky right now.

Worth considering, even if taxes could be higher.

If we decide the former, then 210k per year is rich in sense of “more than almpst everyone else.”

If we decide the latter, then we have to decide what the criteria are.

My personal sense of the word is that folks usually think that rich means “has enough wealth to live pretty much as they please, in grand style, even if they never work another day.” And that has to do with assets, not income.

It’s quite true, as Justin suggests, that people with money will invest their money if they can make more, based on their own standards. But so what? As Tully, David, and Tilyosu point out, rate changes have demonstrable consequences, substantiated by data, that simply can’t be dismissed.

People like to simplify and winnow their arguments until they become so simple that they are incontrovertible. Unfortunately, applied real-world utility seems to decline in direct proportion.

What the dissenters to Justin’s argument do so well is to point out just where his oversimplification falls flat. He said:

In other words…people want to make money. And whether their profits get taxed at 15% or 25%…they’ll still want to keep making money. Duh.

Simple and true. It’s also simple and true that if tax changes adversely effect you ability to make money, you’ll adapt by making different choices.

I support restoring the previous top bracket rate. But I don’t pretend there will be no consequences. As a matter of fact, we’ll all be making a major leap if we become willing to stop pretending that our pet policy changes will bring only positive consequences.

Still, for the sake of argument, I’ll concede. Perhaps there is parity. Perhaps the rich are not given proper credit for their contribution and perhaps guys like me light my hair on fire too often and call the “rich” greedy too quickly. (If so, consider the record set straight.) Still we have to agree to what are facts, and what aren’t, and I still think it’s appropriate once done to discuss what tax thresholds are fair and what aren’t. You know, for guys like me its tough when the party of rich white people nominates a guy like Romney – 14% marginal tax, Cayman Islands, undisclosed tax returns. What are we supposed think? He “earned it”, he’s a “job creator”, or more to the point of this post, “He’s an outlier”? All I’m saying is I don’t think 14% is appropriate when you have more money than God. I suspect that sheltering wealth from taxation is a sport that the rich have become very good at. Finally – I also think that I trust Warren Buffet’s opinion on damn near everything.

This analysis does not include federal excise taxes on products like gasoline, diesel fuel, tobacco products, airline tickets, and alcohol, which disproportionately impact lower-income taxpayers, who devote more of their income to consumption, or state and local income, property, and excise taxes. Including those taxes would flatten the progressivity of the tax system somewhat, but it would not fundamentally alter the basic conclusions of this chart deck.

Emphasis added.

You’re right though, the numbers do get dragged down by the first two quintiles (40% of the population – ) which have negative income tax liability. So if we strip those out and focus just on the “middle class” (40% of the population – $59,486 to $103,465) versus the “rich” (5% of the population – $210,998 and up), we get the following numbers for all federal tax liabilities:

Middle Class: 14.65% effective rate
Rich: 27.7% effective rate

The rich still pay almost double what the middle class does. And when you consider only the very rich (0.1% of the population – $2,178,886 and up), whose incomes are probably largely from capital gains and dividends, they’re still paying an effective rate of 32.1%.

Now, I know it’s hard to feel bad for the rich and the very rich. But you can imagine how frustrating it must be for these people, who provide almost 60% of federal tax receipts, even though they only make 34% of the national income, to hear over and over that they’re greedy, they’re not paying their fair share, or shouldering enough of the burden.

Look at the numbers Khaki, is it really that hard to admit that those arguments are wrong?