> > Two decades ago, when Bill Clinton was elected president, the 400 highest-earning taxpayers in America paid nearly 27 percent of their income in federal taxes, according to I.R.S. data. By 2012, when President Obama was re-elected, that figure had fallen to less than 17 percent
The article talks a lot about "loopholes" and a "private tax system" but fails to mention the fact that in 1992, the long term capital gains tax rate was 28%, and in 2012 the highest rate was 15% (enacted 2003). That's not a "loophole" or a policy enacted in private. It's a conscious policy decision, one which was a part of Bush II's economic platform, and one which was publicly debated at length both when it was enacted and when Obama effectively made it permanent in 2013, except for raising the top bracket to 20%.
And it's worth remembering, as people will try to make it a partisan argument, that Ronald Reagan signed a tax reform bill in 1986 that matched the top capital gains rate to the top income rate. It's been ratcheting back down ever since.
It's often said that if he lived today, Regan would be a Republican pariah. While I'm of the group of people that thinks Trickle-Down Economics is one of the worst policies enacted in my 37 years on this planet, it's been so manipulated and abused as to render it almost nothing like what Regan was after.
>It's a conscious policy decision[...]and when Obama effectively made it permanent in 2013
You say it as if it was intentional. This was in the heat of the fiscal cliff on new years of 2013[0]. Hard to claim that it was very much a rational, deliberated decision.
I guess except for the fact your ignoring the carried interest "loophole" whereby HF Mangers, PE managers and VC managers are able to reclassify fee income as investment income.
Of course, this loophole would not exist if investment income and regular income were taxed the same way. In fact, the more you simplify the fax code the harder it is to game it.
And now it becomes very obvious why the tax code is so convoluted. If you make 8 figures year then it's worth your while to spend alot of money to structure your finances so you pay as little tax as legally required.
Someone like Mark Zuckerberg never needs to earn another dollar or get another option grant again. He can just let his capital gains appreciate and loan against it such that he doesn't have to ever pay income tax again.
As an accountant once told me unless you tax wealth then you can't fight this... and good luck getting an annual tax against wealth passed into law.
If you tax income, then people will take their compensation in a corporation.
Canada addresses the personal/corporate problem with an integrated tax system: To a first approximation, individuals who receive corporate dividends get a refund of the taxes which the dividend-paying corporations paid on that income. It never works out exactly equal, but as long as I've been running Tarsnap the difference between "pay a bonus" (employment income for me, deductible for the corporation) and "pay a dividend" (dividend income for me, paid by the corporation with after-tax dollars) has been less than 1%.
I really don't understand why other countries don't use the same system.
> If you make 8 figures year then it's worth your while to spend alot of money to structure your finances so you pay as little tax as legally required.
I understand what you're saying. If you make $50,000,000 per year, then at some point it's worth spending $500,000 on an accountant who will manage to avoid you paying $10,000,000 in taxes. The math clearly works out, and that's why people do it. I get it.
But man, does it really need to be that way? Is it really so bad to "only" gain $40,000,000 per year instead of $49,500,000? Can you really not get by without that $9.5MM? We've got crumbling infrastructure, cash-strapped schools, students loaded with debt, and the fallout from a housing bubble, but Mark Zuckerberg really needs that new yacht.
Anyway, I can't say I wouldn't do the same in his situation. I understand the motivations. I'm just griping.
I don't make nearly that much (I wish!) but as a middle-class taxpayer in CT, here are my feelings on the matter.
I am most certainly not opposed to the idea of taxes since society cannot function without the government providing some essential services. That said, I am opposed to paying a dime more than entirely necessary as it stands today because I see so much of my tax contributions being wasted.
* Medicare ineligibility to negotiate rates
* Military projects that are vastly over budget
* Government budgeting practices that promote blowing your entire budget at the end of the year so that it's not cut the next
* Excessive and abusive pension amounts for public employees
* Refusal to appropriately discipline public employees (police) for wrongful conduct
I can keep listing more, however before I am asked or required to send in another penny to be spent, I personally would expect at least some of these issues to be addressed, at least where spending is concerned. Until progress is made in these areas, then I will continue to be staunchly opposed to any tax increases and will do whatever I can to lower my own tax bill. If I feel my money is being wasted, then I may as well be the one wasting it rather than the government.
While I think the amount of government waste is vastly overstated, I do understand what you're saying. But I was specifically addressing people who take so much income that they bother with these complicated tax-avoidance schemes. At that level of wealth, the difference between $40MM and $49.5MM of income is not appreciable. I was just griping that it'd be nice if they didn't try so hard to keep every cent of their massive income, so we could simplify the tax code and possibly improve our public services given the increased revenue.
(To be ultra-clear, I know this is in the realm of fantasy-land and I understand why.)
> We've got crumbling infrastructure, cash-strapped schools, students loaded with debt, and the fallout from a housing bubble, but Mark Zuckerberg really needs that new yacht.
It's interesting that you mention education and infrastructure as the big problems, because this is an article about federal taxation, while those are largely state and municipal areas of responsibility.
We spend more on education per capita than every developed country except Switzerland. And while our infrastructure is crumbling, it's because states and cities choose to pay for it through regressive means such as user fees instead of taxes. That's probably because they're in competition with other states and cities to attract residents and businesses.
We've got crumbling infrastructure, cash-strapped schools, students loaded with debt, and the fallout from a housing bubble, but Mark Zuckerberg really needs that new yacht.
Doubling or tripling tax revenue from the super wealthy would not provide the funds to solve any of these problems, if indeed they would be solvable with "more money". There just aren't that many super wealthy people.
Is this true, though? I agree there are not that many super wealthy people. But my guess is that these people are so mind-bindingly, astoundingly wealthy, that you could adequately fund most of the government simply by focusing on the top-N (for some value N).
According to Forbes, there are ~500 billionaires in the U.S., with an average wealth of ~$4B. Let's say $2T total.
If you assume they can make 10% annually on that wealth (probably optimistic), that's $200B/year.
It is totally implausible given the history of U.S. tax policy and compliance, but let's say you could capture a 50% effective rate of that.
That's $100B/year: Not even half the increase in U.S. tax revenue between 2013 and 2014 due to economic growth[1]. Did that extra $200B enable Congress and the President to solve significant problems last year?
[1] And whether you believe in the Laffer curve or not, it's hard to imagine that levying a massive tax on billionaires' investment income would have a positive effect on economic growth & thus tax revenue from the non-super-rich.
Thanks for doing the math. We can nit-pick over assumptions but that puts it into better perspective. Perhaps the N in "Top-N" needs to be greater, but then you're no longer "focusing" on a particular income level as I initially argued for.
When you actually start doing the math it turns out that you need to tax the plain old rich as well as they super-duper-wealthy. That's what is problematic about rampant special pleading for expansive definitions of "middle class".
There was recently an op-ed in the New York Times about this very subject.+ I encourage you to read the comments. Every time the issue is raised you get the same predictable whines about how tough life is on two or three hundred thousand dollars a year. A typical complaint is about how expensive Manhattan apartments are, which is like complaining that it is hard to make ends meet after making the monthly Ferrari payment.
The federal budget is nearly $4 trillion. The top 400 Americans earn about $134 billion. The top 1% earns about $2 trillion. Even taxing them at 50% would only raise half of what was needed.
I think you make an implicit claim by citing these numbers that taxing those 400 specific Americans more is not the solution to solving problems related to the state not having enough money.
But isn't there an argument to be made that when these ultra-rich are stripped of their billions, they are less likely to spend money trying to do things to bend laws to their benefit?
If Koch brothers / Soros did not have the billions they do, they'd spend a lot less gaming the system, thereby the larger population of non-rich having greater power in the system, in essence ensuring better democracy, do you agree?
I think we have exactly the government one would expect from taking account of the demographics of voters. 2/3 of voters in midterm federal elections are 45+ and the median voter in municipal elections is pushing 60: https://www.minnpost.com/eric-black-ink/2015/07/tracking-tur....
Given the demographics, I have a hard time seeing what exactly would be different if the rich had less power. I mean, are we going to raise taxes to make health care free for younger people, when the median voter is going to be eligible for Medicare in a few years anyway? And is it really rich people lobbying for more surveillance and resisting decriminalization of drugs, or is it my mother?
> And is it really rich people lobbying for more surveillance and resisting decriminalization of drugs, or is it my mother?
While your mother may be voting for such policies, she is likely not lobbying for them (or writing them). The companies and high net worth individuals who have a financial stake in these policies are the ones doing that.
Every piece of legislation that exists benefits a rich person in some way.
Thats not really the point as i see it though, its more one of fairness ... why should the richest of the rich get to basically make their own law and play by a different set of rules than the rest of us ?
As an accountant once told me unless you tax wealth then you can't fight this... and good luck getting an annual tax against wealth passed into law.
The direct tax clause of the original constitution, even as modified by the sixteenth amendment, probably forbids such a thing at the federal level. So it'd likely take a constitutional amendment.
That said, I'm not quite as pessimistic as you. Between consumption taxes and estate taxes (which are about the only wealth tax we have) we could get at most money if we had the will to do so. The estate tax is filled with holes because Congress wants it to be, not because of any inherent complexity or definitional difficulties.
There is an ultimate tax avoidance strategy of renouncing citizenship and living and consuming abroad. I would impose a lifetime ban on entry on renouncers, but beyond that I think it is fair game. If you aren't an American we shouldn't be taxing you.
Also it is my understanding that if an American would like to move to another country, and become a citizen of that country (for any number of reasons), they have to renounce their American citizenship.
People moving to the United States, on the otherhand, may retain their citizenship of certain countries, such as Canada.
>> I'm not aware of a single American individual who gave up their citizenship for politics (and I work in this field).
Firstly I'm not sure which 'both' are untrue, as I had 3 points, so your response is a little confusing.
Politics: There where some number of American men who where wanting dodge the American draft before it was abolished in 1973, particular in the 60 and 70s. I suspect some number of draft-dodgers renounced their American citizenship. Similarly, some number of American women did not want their children to be subject to the draft, and didn't agree with American wars, so they too moved away, and renounced their American Citizenship--I know some women for who this is absolutely the case. I also know some people who currently reside outside of the US who would renounce their American citizenship were Trump to be elected president. I would say all of these example falls under the board heading of "politics".
I would agree that it is currently the policy of the US Government not to make individuals renounce their citizenship where they to become a citizen of another country, but I do not know the history. It is that other countries do make new citizen renounce their other citizenship(s); Singapore, for example. https://en.wikipedia.org/wiki/Renunciation_of_citizenship
Similarly, if Singapore citizen was to obtain American Citizenship, s/he would have to renounce their Singaporean Citizenship.
As an accountant once told me unless you tax wealth then you can't fight this... and good luck getting an annual tax against wealth passed into law.
Wealth has many of the same problems. Unless you're going to try to tax someone's global holdings (how?), it's much easier for a hedge fund billionaire to park (and enjoy) his money in Chilean wineries and Dubai-registered jets than it is for a mere millionaire. Sure, you can buy a little plot in the south of France or a condo in the Caribbean, but it will cost you a much larger fraction of your income to keep it up and travel to enjoy it.
And trusts can shield wealth just as well as they can shield income.
It's effectively impossible to make the top few hundred taxpayers pay an effective rate much higher than 15%. But other than some appeal to fairness, who cares? They're already paying thousands of times over what the median taxpayer is.
The risk of social unrest grows in approximate proportion to the amount of economic inequality, so the tax policy of a democratic government must be calibrated to redistribute enough wealth to prevent this from happening. That's the practical argument for progressive taxation.
Redistribution doesn't have to mean taking cash from one person and handing it to another. Instead taxes pay for investments like national security, scientific research, infrastructure, education, health care, environmental health, etc. These raise the overall living standard, and if the rich pay a larger proportion of these costs, it is a form of redistribution.
That is the historical lesson: give up some of your bounty or give up all of your life. There's a country that once had such unrest about this that the people built machines to make it efficient to remove people's heads, they had so many to remove. And it wasn't just the rich who got caught up in this frenzy, at least one innovative chemist had his head removed and he wasn't all that well to do.
So yes, it's destabilizing for ultra wealthy to keep trying to take all the marbles.
Justice: fair distribution of the world's resources and an opportunity for a decent life, for everybody. Taking as much as possible is what the wealthy do.
>Taking as much as possible is what the wealthy do.
There's a difference between taking and earning. Some wealthy people take wealth (e.g. steal it), but most of them earn it. Bill Gates didn't take any of my money, but he earned some of it, because I decided that a product his company sold was worth the price.
Taxation, on the other hand, is not earned money; it's taken.
Please see section 12.2 here[0], quoted below, for a refutation of the idea that "taxation is theft":
"""Consider the argument "How can we have a holiday celebrating Martin Luther King? After all, he was a criminal!"
Technically, Martin Luther King was a criminal, in that he broke some laws against public protests that the racist South had quickly enacted to get rid of him. It's why he famously spent time in Birmingham Jail.
And although "criminal" is a very negative-sounding and emotionally charged word, in this case we have to step back from our immediate emotional reaction and notice that the ways in which Martin Luther King was a criminal don't make him a worse person.
A philosopher might say we're equivocating between two meanings of "criminal", one meaning of "person who breaks the law", and another meaning of "horrible evil person." Just because King satisfies the first meaning (he broke the law) doesn't mean he has to satisfy the second (be horrible and evil).
Or consider the similar argument: "Ayn Rand fled the totalitarian Soviet Union to look for freedom in America. That makes her a traitor!" Should we go around shouting at Objectivists "How can you admire Ayn Rand when she was a dirty rotten traitor"?
No. Once again, although "traitor" normally has an automatic negative connotation, we should avoid instantly judging things by the words we can apply to them, and start looking at whether the negative feelings are deserved.
Or once again the philosopher would say we should avoid equivocating between "traitor" meaning "someone who switches sides from one country to an opposing country" and "horrible evil untrustworthy person."
Our language contains a lot of words like these which package a description with a moral judgment. For example, “murderer” (think of pacifists screaming it at soldiers, who do fit the technical definition “someone who kills someone else”), “greedy” (all corporations are “greedy” if you mean they would very much like to have more money, but politicians talking about “greedy corporations” manage to transform it into something else entirely) and of course that old stand-by “infidel”, which sounds like sufficient reason to hate a member of another religion, when in fact it simply means a member of another religion. It's a stupid, cheap trick unworthy of anyone interested in serious rational discussion.
And calling taxation “theft” is exactly the same sort of trick. What's theft? It's taking something without permission. So it's true that taxation is theft, but if you just mean it involves taking without permission, then everyone from Lew Rockwell up to the head of the IRS already accepts that as a given.
This only sounds like an argument because the person who uses it is hoping people will let their automatic negative reaction to theft override their emotions, hoping they will equivocate from theft as "taking without permission" to "theft as a terrible act worthy only of criminals".
Real arguments aren't about what words you can apply to things and how nasty they sound, real arguments about what good or bad consequences those things produce."""
It always is the appeal to fairness - if the folks at the top get away with it, it's like Soviet Dachas, Popes with mistresses etc. The top must be made to be equal if society is to be equal.
The how - is what is in the wind - international cooperation.
Life in the U.S. is good, but nobody is getting an "unfair" allocation of all the great benefits and opportunities the federal government provides if they're paying $56M for it.
In 2012, the top 400 earners reported average income of $335.7 million [1].
$335 million!
The ultra-wealthy get a huge allocation of "benefits and opportunities" from the government, much more than anyone else. $56M seems like a fantastic deal, as it pays for the system that is set up pretty much entirely to ensure these top earners make gobs and gobs of money forever.
The average income of the top 400 taxpayers is $335 million/year. Had those people been born and grown up in Bangladesh, instead of the U.S., I doubt it would be 1/10th as much, if that. So $56 million a year doesn't sound so bad for the privilege of living in a society that enables wealth creation like few others.
Neither would $100M or $200M. And for someone making $50,000, paying a 50% effective rate sounds like a great deal compared to living in Bangladesh. I don't think that argument implies anything about what rates should be, which makes me wonder exactly what it's supposed to demonstrate.
Presumably, it's "fair" to tax people somehow proportionally to the amount of benefit they derive from living in the U.S. with its government. If someone would make $10 million were they born in Bangladesh, but make $100 million having been born in the U.S, that excess $90 million is a benefit they derive from the U.S. and it's fair to tax them up to $89 million of that. They're still $1 million better off than the baseline.
Now, that's the limit of what's morally "fair." What's "optimal," taking into account competing developed countries, may be a lot lower. But taxing up to that limit is "fair."
That's a really good argument - and emphasises the value of living in one country over another - very reminiscent of city state style arbitrage.
I feel there is another "fair" - that of paying the same percentage of income or wealth as everyone else. This is easier to explain and appeals to a more monkey brain part of us.
As an example (from the cbsnews link)
While the tax rate on dividends has since jumped to 20
percent for people earning more than $400,000 annually,
that's still far below the tax imposed on wages for
America's highest earners.
20 percent on dividends !? That can't be right ? In the UK we get the same rate as all other income (40 rising to 45).
But society provides an unfair distribution of the benefits of society. A black male born in west Oakland doesn't receive nearly the societal benefit as a white male born to a family a couple miles away in Peidmont. So why should we tax the first guy at the same percentage of the second when the second is receiving extremely more than the first?
Does your boss ever say to you: "We're having a really bad year. Instead of paying you $50,000, I'm going to have to pull $50,000 out of your savings account"?
That's the difference between taxes on investments and on income. Investors are risking loss in a way that workers are not: If your boss stops paying you, you stop working.
What's special about Bangladesh when defining "fair"? Do you mean it as a proxy for somewhere with no significant government benefits or services?
And since Bangladesh's median per capita income is something like $600, it implies that tax rates capturing all but $600 of the median U.S. worker's $51,000 would be "morally fair". 98.8% effective rates!
I don't think a definition so constructed has any significant value.
I use Bangladesh as an example because my family is from there--I can easily estimate the difference between what I make having grown up a citizen of the U.S. versus what my similarly-situated cousins make. But more generally, it's an example of a country that provides internal security, but not much beyond that. It you're starting a business in Bangladesh, you can't take advantage of governmental and social capital: educated workers, wealthy customers, research institutions, etc.
The morally fair tax rate is more like 85%--the median U.S. individual income is around $30,000, while the median PPP-adjusted Bangladeshi income is $3,300. But yeah, that's absolutely fair. Just the simple fact of being born in the United States, keeping everything else equal, gives you a huge advantage in wealth.
> It's effectively impossible to make the top few hundred taxpayers pay an effective rate much higher than 15%.
This is a problem that could be solved with sufficient political will. But, since our politicians are owned by these top few, and the government provides the framework under which these top few stay at the top, there is effectively zero chance that this political will could ever materialize.
I completely agree with this. Short of taxing wealth or taxing consumption, like the FairTax proposal[0], there's no way around shelters and avoidance.
I find it hard to hold a grudge against wealthy individuals who minimize tax liability. It's perfectly legal and it's in their best interest.
I agree that the law isn't moral, and I don't think that 'buying politicians' is acceptable or moral. I'm not asserting that wealthy people have no moral obligations--they do--but how much tax they should pay as a percentage of wealth and how that number was derived isn't one of them.
Sure. What is the fair share? Is it defined in absolute dollars? Is it a percentage of income? A percentage of wealth? Who determines what is the fair share? Are they elected? Is it a direct ballot measure? It's easy to agree to broad concepts when it comes to this sort of thing and horrifyingly difficult to enact practical measures.
My own knowledge is limited to a few US states and federal government, but in all of those cases, the same problems described in the NYT article and above exist. Some other commenters here have definitely posted a few good examples of where they feel it works (like Canada.) What are others?
Agreed. There are lots of other sticky issues related to the idea of switching to a consumption-based tax. Not arguing that it should be adopted; every system will have pitfalls.
We do tax some wealth: property taxes. There are residential property taxes and business property taxes.
And wealth managers often charge fees based on a percentage of assets (at least for $1/2+ million accounts). So there is precedent for such a system.
The political reality of expanding on this is a different matter. Any change would have to be gradual, because taxation is a huge intervention in market forces. i.e. to just suddenly stop taxing income, and tax wealth or tax consumption would very abruptly change the dynamics of the economy. But we don't have a political system that incentives 10, 20, 50 years down the road sorts of end goals. We have a system that favors the catch phrase of the week.
Some tax systems, including some income tax systems, are more effective than others. It's true none will ever be perfect, but we'll never eliminate murder and other crimes either. However, we can do a better job.
This is my main reason for liking a national sales tax. I know there are issues with consumption taxes (as with all taxes) but it not only encourages savings at lower income levels, but means a ~32% tax gets levied on a pencil and a mega-yacht equally.
This is why we need a land value tax. It's the only form of tax that can actually legitimately be enforced and doesn't lead to economic activity being moved offshore or under the table.
No. Valuation might not be trivial, but LVT would definitely be the easiest tax to enforce. Don't pay the taxes on the land you own? You lose ownership.
Ideally it'd be the single tax, but that doesn't preclude it from being useful in conjunction with other taxes. For example, we could start by simply replacing property taxes with LVT, and that alone would spur economic growth.
I agree with many of the sentiments here, as a non-American coming from a dispotic regim. I spend months in the US to explore setting up my startup here and to talk to investors and possible clients -
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I was put off by the tax system.
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The taxes are too high, and too complex.
With such high taxes I'm surprised the gov has so much debt.
Sure there are places with higher taxes.
But I thought America was the land of opportunity, the mecca of Capitalism.
It stil was all that - I would love to have the option to stay there - an amazing experience - the quality of life and the level of consumer choice is fantastic.
However America should consider copying the tax codes of places like Singapore, Hong Kong or Taiwan.
The biggest challenge is of course the federal system which imposes taxes seperately at the state and central gov/federal level - making things complicated - but of course in return creates stronger local alignment and more choice. (Better for democratic freedom)
But especially business taxes need to top out at lower level at the federal level.
In my opinion, as an outsider.
We ended up NOT registering our business in the US and would only do so if forced by investors - but we'll be bootstrapping for a while so not a consideration.
The US as a place to register a startup for an outsider, is a seriously unattractive proposition.
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On top of this the US has this batshit crazy policy of double taxation for international people.
Most other countries have double taxation treatiea so that you aren't taxed twice on the same income!
Everyone is put off by the tax system. It's a product of 300 years of cronyism. Want your tax break? Pay lobby Firm Jones and Smith, LLP on K-street a few million dollars, and in goes your clause as a subsection of an anti-gun hysteria bill passed right after some white elementary school kids in Connecticut get massacred. Like for-profit-prisons, there are too many people who count on the existing tax framework to see any actual alteration of it. The defense department needs their billions, as do the sub-contractors who make money charging 4x the market rate for because they're part of some GSA Alliance contract vehicle; the tax attorneys at Skadden depend on it being complicated, the hundreds of thousands of CPAs do too, as do the people employed by the IRS. If you change the tax-code to something like HK, all of those economic sub-sectors fall apart.
As someone who's a partner at a consultancy and in the highest marginal tax bracket, I'd be more than happy to pay my fair share if companies like Apple and Exxon didn't use countries like Ireland to avoid remittance taxes to the tune of 250 billion dollars a year, effectively putting the burden on the rest of us. (Well that and if we stopped spending 5x the aggregate of the next most-heavily invested countries re: defense, and re-allocate even 5% of that money to national education, STEM programs for innercity kids, the arts, and the NSF but again, fat chance of that happening.)
Societies where money strongly influences politics breed corruption and lose productivity: You can buy political influence with money, of course, but also it works vice-versa: You get money from political influence, by controlling law and policy, rather than as a reward for economically productive activity. The business of the nation, or at least a major industry, becomes corruption.
And most of Europe is more corrupt than the US.
The Nordic countries have their own issues Denmark, Norway and Sweden are currently running minority governments.
Legislation has been halted for quite some time and Sweden is on it's way to a political meltdown.
RE: Corruption, Sweden, Denmark, Finland and Norway are literally four of the five countries in terms of "least corrupt". Their government might be dysfunctional, but corruption, they lack (by that metric). And as I understand it the national-general-contentment-rate (I'm not sure what the actual term is, but some sociological survey was conducted with as much rigor as the soft sciences can produce) those countries have similar ratings for happiness as well.
Though, even if you include the former soviet states, Latvia, Hungary, Poland, etc basically everyone except Ukraine is in the top third of the least corrupt, which is not that darn bad considering.
So is the US, France, Spain, Austria, Portugal, Greece, Italy and Eastern Europe are more corrupt than the US.
As for the Nordic states I haven't argued that they are not, I would say that they are potentially corrupt in other means as nepotism plays more than money but again it doesn't matter.
The US is still one of the least corrupt nations on the planet.
The Inca empire lasted for about 100 years, we can might as well use "Sparta" as they've also allegedly were forbidden from possessing gold and silver (although in ancient world in many places commoners were not allowed to posses gold or silver as they could be used to buy favors ;)).
Growing up in an communist country I saw much less corruption than after we were liberated by democracy and liberal capitalism has been introduced. As a consequence of the system change, the corruption throughout the country rose to the unforeseen levels.
But of course, since communism lost, at least for now, it is an easy target for snarky comments.
My parents grew up in soviet Russia they ran out in the late 80's if they would've waited and survived the turmoil they would most likely have become Oligarchs but it wasn't a good time to be a prominent Jew in Russia and they tell quite a different story.
Every institution was corrupt to the bone, if you wanted to send a package somewhere and for it to actually arrive at it's destination you had to bring 2 loafs of bread and a jar of home made pickles with you to the post office.
Communism like most dictatorships was more or less clean and organized on it's surface. One of the scariest things about authoritarian regimes is just how normal and calm they seem to many people that live under them.
Heck martial law is quite commonly regarded by many to be quite "nice", all crime stops, the streets are clean, no one bothers anyone ofc if any trouble ensues all parties tend to be lined up against the wall and shot but other than that it's almost utopic.
It just amazes me that you could spend your whole life working as a tax panner in a family office, when you aren't even related to that family. An entire career devoted to helping a single super rich family avoid taxes. What a life!
It's a career devoted to helping a very large enterprise with diverse interests comply with a very complicated, fact-intensive, and generally multinational set of regulations in the same manner as every tax professional since Learned Hand: diligently paying the lowest amount consistent with the law.
Substantially every business owner you know -- the ones with top line revenues of $100k, $1 million, $10 million, and $100 million -- employ 0.05 to 100+ full-time accountant equivalents for the same purpose.
I am on uncomfortably good terms with my friendly local tax office and they're all but begging me "Mr. McKenzie, it will be easier for all of us if you just get a pro to do it for you this time." (Tax agencies essentially delegate surveillance duties to CPAs; a Japanese CPA signing off on my return means the Meguro tax office doesn't have to trouble their heads about how Japanese tax law interacts with an American LLC owned by a Japan-resident American covered by a really complicated treaty.)
I have a really good CPA in the US. I simply have not been able to locate one in Japan yet, because my requirements are rather esoteric: table stakes is "bilingual; you need to know the difference between on-premises and off-premises software or be able to retain a working model of that difference after having it explained to you once; you must be comfortable working in the intersection of Japanese and American tax law; you need to be comfortable doing business over email and Dropbox; please don't charge me $2k per hour as that will eclipse the profits of the business before my taxes get filed."
I don't know who best fits these criteria in Tokyo yet but would welcome an introduction. I have a strong suspicion that I was the best qualified person in Gifu.
Hence me trudging down to the tax office a few times a year with a notebook, a stack of forms, and a highlighted copy of a National Tax Agency publication with the query "So I've got an odd one for you..."
Agreed - but there are a lot of family businesses that do billions in revenue.
A few off the top of my head are Cox Enterprises which does 17B in revenue and is owned 99% by the family, SC Johnson which does 11B and my understanding is it's mostly held by the family, and Hallmark which does $3.8B and is held by the family.
We also could trace back family shareholders of large corporations who have gone public - Wal-Mart, Ford, etc.
I was interested in some of the mechanisms that they use specifically. Here are some examples from the article:
1.
Mr. Loeb, for example, has invested in a Bermuda-based reinsurer — an insurer to insurance companies — that turns around and invests the money in his hedge fund. That maneuver transforms his profits from short-term bets in the market, which the government taxes at roughly 40 percent, into long-term profits, known as capital gains, which are taxed at roughly half that rate. It has had the added advantage of letting Mr. Loeb defer taxes on this income indefinitely, allowing his wealth to compound and grow more quickly.
2.
One aggressive strategy is to place income in a type of charitable trust, generating a deduction that offsets the income tax. The trust then purchases what’s known as a private placement life insurance policy, which invests the money on a tax-free basis, frequently in a number of hedge funds. The person’s heirs can inherit, also tax-free, whatever money is left after the trust pays out a percentage each year to charity, often a considerable sum.
Not sure about the offshore reinsurer, but the charitable trust sounds like a charitable lead trust, probably a non-grantor charitable lead annuity trust.
The basic idea with a charitable lead trust is that it's organized for a certain term (a number of years, or life of a specific person or some combination) and during that term, the charity will get specific payments (subject to the trust remaining solvent), and when the trust ends, a beneficiary will get the remainder. If the trust is properly constructed, when the trust is funded, the present value of the remainder is determined and used as the gift/estate tax value for the gift to the beneficiary; if you can make that zero, while also investing assets in the trust in such a way that the remainder is not actually zero, then you've avoided gift/estate tax. I believe the donor also gets a charitable tax deduction for the present value of the payments to charity, spread over 5 years, and subject to clawback in some cases.
I'm not really sure how the private placement life insurance plays in, it's likely a way to avoid income tax for the trust (a charitable lead trust is subject to tax on its income), as life insurance proceeds are generally untaxed.
Doesn't matter. Money is created through debt on national level. Eliminate the debt and you're running risk of deflation, not to mention other economic issues associated with that, like job losses in public sectors.
The Laffer Curve illustrates a sweet spot of taxation to produce maximum revenue.
People will always avoid tax if it's too high. Either they'll pay millions to accountants to avoid paying tens of millions to the taxman, or they'll simply not bother working so hard and they'll stop fighting to realise their career potential.
The answer is not for the taxman to spend tens of millions to reclaim tens of millions of tax. The answer is to lower tax rates to the sweet spot of the Laffer Curve and thus maximise revenue.
That's all too boring and technical for the media, though, and it won't sell papers. The media aren't concerned with maximising Treasury revenue. Instead they indulge people's instinctive grievances around inequality and demonize the wealthy.
The Laffer curve was used by the GOP in the 1980s to intellectually legitimize[1] the policy of cutting taxes.[2] They said cutting tax rates on the wealthy would increase tax revenue (!) and the benefits to the wealthy would "trickle down" to everyone else through increased investment, etc.
The results were simply that the wealthy had more money. The federal government developed a massive deficit and while the economy has grown since the 1980s almost all the resulting wealth has been acquired by the wealthiest; incomes of 'everyone else' have stagnated since then.
IIRC, the Laffer curve was never taken seriously by any but partisan economists, and was widely discredited.
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[1] You'll note that all parties love to create 'research' that provide intellectual ballast to their predetermined policies. They know what sells to the intellectual crowd, who see something that looks like legtimate research but certainly don't have the time to study the issue themselves. The parties have pet think tanks that produce studies for them; for example, the Heritage Foundation is a prominent example for the GOP.
[2] As evidence for note #1: Consider whether the GOP ever would consider a higher rate the appropriate level for taxation. Of course not. The results of the research are predetermined by the desired policy. The Democrats do it too, but I don't think they take it to the extremes of the GOP: Climate change denial, the evidence for the Iraq War, not regulatng the housing market before the crash, fighting finacial regulation after the crash, etc. (People want to be 'even-handed' and say it's balanced, the same on both sides, but really it would be a surprise if any situation worked out that way. I'm not partisan, I support any route to more pragmatic and less crazy policies.)
There's a difference between illustrating a qualitative economic phenomenon (which the Laffer curve does) and actually building policy proposals based on it.
The Laffer curve is a gross simplification of reality.
There is no evidence the tax income "curve" has a single turning point (given multiple differing sources of of income that are earned in different ways this is almost self evident). Even if that assumption about a single turning point holds there is no evidence that the US are on the right-hand side of the curve.
So you're saying that if the tax were lower, people would fire their accountants and pay more taxes out of the goodness of their hearts? A sense of fairness?
They would if the cost of hiring someone to help save money on taxes cost more than it saved. It's not about a sense of fairness. If paying someone to save on taxes is a bad investment, people stop doing that.
So, if we're talking revenue of billions.. cut taxes to 0.0001% and that's the peak of the Laffer Curve where we maximize revenue? That's the argument?
Capital moves more easily than labor.
Not only are there loopholes to not pay taxes, they can also shift operations so that profits are realized in a different jurisdiction and the money goes there instead.
Despite large cuts in corporate income tax and a reduction in consumption tax coupled with temporary increased spending, Canada's debt to GDP ratio is where it was before the '08 crash. The debt increased about 50% during this time, but so did the GDP. Companies stayed in Canada/came to Canada and with growth came more tax revenue. The fear was that the books would never get near balanced again with drastically reduced tax rates, but 2014/2015 was roughly balanced. (Arguably about -$3 billion for the whole year)
The Laffer Curve deftly illustrates that lower tax rates can result in higher revenue than higher tax rates. The hypothetical does not demonstrate that there is a single sweet spot, and as noted in the Wikipedia article The shape of the curve is uncertain and disputed.
It could well be that current taxes rates are at a point on the Laffer Curve where increasing tax rates would increase revenue.
Personally I think tax and welfare should just be simplified to a flat rate of tax and a universal basic income to all citizens.
That way we avoid welfare being a trap (no welfare is lost when the claimant gets a job). And we simplify both the collection of tax and the payment of welfare, saving significant cost.
The bottom line is that the Laffer Curve as a concept should be dismissed as a rhetorical device and we should demand an elucidation of the likely consequences of tax cuts and tax increases given our current situation.
(The CBO spends a lot of their time doing exactly that, scoring bills and whatnot)
The fact that there are diminishing revenue-returns and (socially) wasteful behavioral responses to taxation is not at all theoretical, but has tangible implications for policy. Even the very CBO you cite is implicitly recognizing these effects.
Both a $0 and a $1 million tax on shoes will raise approximately zero revenue. Why is is the former so much better? Your answer is going to make the very same points elucidated by the Laffer Curve.
we should demand an elucidation of the likely consequences of tax cuts and tax increases given our current situation. isn't exactly a rejection of your first paragraph there. It's basically a synonym for tangible implications for policy.
And dismissed as a rhetorical device doesn't mean it is useless, it just means that the concept itself isn't worth a whole lot in a policy discussion, at least not once you've got everyone in the discussion to agree that cutting taxes can be beneficial (which I hope is not usually something that requires much discussion).
What a joke! The media OCCASIONALLY reports on their activities. But most of the time they just don't. NYT has become moderately more adversarial in recent years, though not consistently. Most of the press not counting explicitly left-wing outlets operate as uncritical stenographers, the credulous, fawning tech press especially.
First, simply invoking the Laffer curve is irrelevant. I think most of us implicitly understand that there is a maximum revenue somewhere above 0% and below 100% taxation. What's not obvious is where that is, ie whether current tax rates put us above or below maximum revenue.
Second, people will always avoid tax, period. If one can spend $1 to save $10, then people will, no matter how low the tax rate is. The bare existence of tax avoidance is not a sufficient indication that the tax rate is too high.
Third, no one wants the "taxman" to lose money trying to reclaim taxes. There are obviously more options than the two you are strawmanning: A) lose money trying to reclaim taxes and B) lower the tax rate.
Unfortunately we still don't know where that sweet spot is. In a world where it is really easy to move money to avoid taxiation we may very well find out that the "sweet spot" is at 0%. Then we only have to find out how a country can survive without taxes ... another unsolved problem.
It illustrates that there is a sweet spot. It does not illustrate the sweet spot. Which makes sense because it likely varies based upon the economy & tax laws of this and other countries.
The article you linked quotes anywhere from 20% to 70%.
So, let me get this straight--people will choose to "work less" and make less money if their tax rate was higher? In what universe? That makes zero sense. If anything, a higher tax rate will incentivize one to increase their pre-tax income in order to maintain their post-tax take-home.
There are many such marginal cases that decide not to work (for cash on the market) due to changes in after tax income: housewives (who eg must balance the income against new childcare expenses and less free time), students, people near retirement, high-income professionals (surgeons), wealthy actors ("I have so much there's no point to getting out of bed for less than a million").
But yes, the "backward bending supply curve"/income effect you describe also exists, usually for primary breadwinners.
I'm not advocating anything personally, I'm saying the GP's proposal might as well go further into decentralized direct democracy, which is clearly the intention.
The higher income people must pay less taxes, because society cannot provide enough services for their paid taxes. It seems as paradox but that's the Truth. Otherwise the rich person will find a way to pay 0's taxes in one of dozen tax-haven places like andora. As result government got nothing. That's why the richest you're the lover taxes you have to pay.
take a look at the loop holes added in the recently passed omnibus spending bill. The tax code in the US just keeps getting patched. Would it not just be easier to choose a flat tax for individuals and stick it to everything? Think of all the paper work costs saved.
Another idea would be to go back to an apportioned scheme like we originally had in the constitution. Maybe by congressional delegates than by state as RI could not possibly match CA in tax contributions.
The article talks a lot about "loopholes" and a "private tax system" but fails to mention the fact that in 1992, the long term capital gains tax rate was 28%, and in 2012 the highest rate was 15% (enacted 2003). That's not a "loophole" or a policy enacted in private. It's a conscious policy decision, one which was a part of Bush II's economic platform, and one which was publicly debated at length both when it was enacted and when Obama effectively made it permanent in 2013, except for raising the top bracket to 20%.