Taxing The Rich

There were 3,912,980 tax returns in 2009 that had a taxable income of \$200,000 or more.  These 3,912,980 households combined for a total taxable income of \$1,625,622,124,000.  That is \$1.6 trillion.  A lot, right?

Well, in 2009 our deficit was \$1.4 trillion.

Imagine if you were to raise the tax rate on our richest friends and neighbors to 100%.  Not marginal mind you.  Marginal is where an individual is taxed at one percentage for a certain amount of his income, then another higher percentage at the next set of income and then more yet again at the next set.

That is, say the marginal rates were something like this:

 Low Boundary High Boundary Rate \$0.00 \$20,000.00 10.00% \$21,000.00 \$50,000.00 20.00% \$51,001.00 \$100,000.00 30.00% \$100,001.00 on up 40.00%

And someone made \$200,000.  She would be taxed 10% on her first \$20,000 for a total of \$2,000.  Next she would be taxed 20% on her next \$30,000 for a total of \$6,000.  Her next step is to be taxed 30% on her income from \$50,000 to \$100,000, or \$50,000 for a total of \$15,000.  Last is her income above \$100,000.  Because she makes a total of \$200,000, she is taxed 40% on the remaining \$100,000, or \$40,000.

So, adding her taxes up as she climbs the progressive tax system, her tax is \$2,000+\$6,000+\$15,000+\$40,000 for a grand total of \$63,000.

Imagine making \$200,000 and having to give \$63,000 of that to the government.  Ugh!

Anyway.  That’s how the system works today, in general; I didn’t use real numbers.  So, in our NEW tax world, we REALLY hate the rich so we’re gonna tax ’em at 100% total tax.  That is, for every \$1 they earn, we’re gonna tax ’em \$1.

If they make \$285,000 we’ll collect \$285,000 from ’em.  Alex Rodriguez and his \$22 million contract?  All ours.  All of it.

Every dime.

The United States government would bring in \$1.6 trillion.  After paying off the deficit we would have \$200 billion left.  Not enough to even dent our remaining debt.

But guess what happens when people work their freakin’ asses off and get no money?  They conduct a value analysis and conclude that they could work for a whole year and make zero dollars OR they could do NOTHING and and make ZERO dollars.  Actually, what they’d ‘prolly do is accept a salary of \$199,999 and be allowed to keep at least some of it.  But…but they probably wouldn’t do as much work as they were doing when they were earning all that money before.

The point is this.  You can tax the wealthy at 100% REAL tax and it wouldn’t even make a difference.  Raising the rate by 4 points isn’t gonna make a difference either.

None.

1. nickgb said:

Anyway. That’s how the system works today, in general; I didn’t use real numbers
Because real numbers are a lot less progressive than your fake ones, I assume?
The highest marginal tax rate in the US is 35%, which doesn’t kick in till you make \$380,000.

Your poor little rich girl is paying \$50,900, or an effective tax rate of about 25%.

“So, in our NEW tax world, we REALLY hate the rich so we’re gonna tax ‘em at 100% total tax.”
Taxation isn’t about hating the rich.

You’ve got two “points” here, but you muddle them together. One point is that if you taxed people at 100% “total tax”, by which I assume you mean effective tax rate, they aren’t going to work at all. Sure, that would be true unless they were dependent on state benefits which required work, as is the case in a totally redistributive communist country. Of course, that has nothing to do with us. We have taxes that cap at 35%, and that doesn’t count the myriad ways people have to deduct, credit, and obscure finances. So as far as your hypothetical is a thought experiment, what’s the point?

Your other point is this:

“The United States government would bring in \$1.6 trillion. After paying off the deficit we would have \$200 billion left. Not enough to even dent our remaining debt. … You can tax the wealthy at 100% REAL tax and it wouldn’t even make a difference. Raising the rate by 4 points isn’t gonna make a difference either.”

I just had to cut out the entire “what if there was a 100% tax” fairy tale in the middle. Yes, raising the rate 4 percent will make a difference. It won’t make the whole difference, but it will make a difference. It won’t erase the debt in one swoop, I don’t think it would balance the budget in one swoop. Raising the marginal tax rate (or the effective tax rate, which I assume you’re calling “REAL tax” here) will bring in more money which will lower the deficit by some.

• pino said:

Because real numbers are a lot less progressive than your fake ones, I assume?
The highest marginal tax rate in the US is 35%, which doesn’t kick in till you make \$380,000.

Nah, I don’t think so. Mostly because when I wrote this post it was 1:30 AM and I was hustling to get to sleep. I was just going to use the straight 100% number but realized that many people don’t know how the tax system works. Kinda in the same way that not all people know how laws are built and stuff. So I made up a simple system that used ten’s and nice even bracket points.

Anyway. The point is I used it as an example. Where I DID screw up was offering commentary on the result. I shouldn’t have done that.

Taxation isn’t about hating the rich.

You understand that the claim right now being leveled at the Left from the Right is that the Left is engaged in class warfare? That the whole idea of “Let’s tax corporate jet owners” is to create a division of the “they”. And when the “we” of the “we/they” get big enough, they’ll vote the Left’s guy in.

YOU may not hate the rich; heck, you may BE the rich. My claim is against the professional political Left.

Sure, that would be true unless they were dependent on state benefits which required work, as is the case in a totally redistributive communist country.

Right. But we’re in no danger of that what-so-ever. If we were, we would use the folks getting unemployment to build our bridges and roads. Which, by the way, I’m a HUGE supporter of. If it were up to me, in order to receive benefits you would have to come to an office, “punch in”, look for jobs, go to interviews, write resumes and applications. If there was none of that for the day? Go build a bridge. Or whatever it was that the State needed done.

We have taxes that cap at 35%, and that doesn’t count the myriad ways people have to deduct, credit, and obscure finances. So as far as your hypothetical is a thought experiment, what’s the point?

The point is the one you speak about below. Even if we do take another 4 points to the wealthy; it won’t matter. I demonstrate this by saying we could take ALL of their money and it wouldn’t make a difference. And, they would stop working as well.

It won’t make the whole difference, but it will make a difference. It won’t erase the debt in one swoop, I don’t think it would balance the budget in one swoop. Raising the marginal tax rate (or the effective tax rate, which I assume you’re calling “REAL tax” here) will bring in more money which will lower the deficit by some.

You’re right. It does make a difference; however, I would point out that it does so in more of a trivia kinda way. Not a real meaningful way.

During the debt ceiling debate I was supportive of the whole “no new taxes” meme. Not because I don’t think new taxes won’t work in their small way. But because we have a much much larger problem on the spending side. And until we address THAT issue, no amount of 1-2-3 point tax rate changes is going to matter.

However, during one of the last primary debates, I cringed when the candidates all raised their hand saying they wouldn’t accept a 10-1 spending cut to tax ratio. At some point you have to be willing to take a monster deal. If government [right AND left on this one because the republicans don’t wanna cut their programs any more than the democrats want to cut theirs] is really willing to really cut THAT much, I’d sacrifice the ideology for reality.

I was watching O’Reilly last night and he had some guy. Some guy that Bill thought would support his side of things. Turns out the guy went the other way and came out in favor of the tax increases. Not because he thought it would impact the deficit in any meaningful way, but because he felt it was what he called a “sop”. That thing that is crucial to the folks on the other side of the negotiations table but are, in the face of it, meaningless.

Give the sop, take the deal.

That’s why I suck at any interpersonal politics. I’m too ideological when it comes to my own views, my debates turn to arguments that lose strategic value and I, well, sometimes I’m obtuse 😉