How to reduce wealth inequality?

[iNow]

You claimed that your government would use wisely money got from additionally introduced tax. Pretty naive!

Well, no actually. I didn't claim that. If you disagree, feel free to prove otherwise using the handy quote feature offered by this site. To save you some time, I'll just remind you that I said higher tax revenues would allow for greater opportunities to invest in the things I referenced.

 

Yes, I understand what you claimed. And I overthrow it with extremely sad example. Your deficit is in pocket of weapon making companies and bankers now.

Again, red herring, or at the very least nonsequitur.

 

Listen. I don't disagree with you that too much is being spent today on war and related activities and that this money can be better spent on social goods. Even with that stipulated, none of that negates the point I'm actually making here that one approach to addressing the vast inequality we see today is to restore tax rates on the top 1% back to what they were during times of great shared prosperity prior to the 1970s.

 

 

 

Which years in history you have in mind while saying "taxes that are more inline with what we saw for generations and during times of amazing growth"?

See above. Again, pre-1970s, with the effect most obvious in the 1950s.

 

http://www.theatlantic.com/business/archive/2012/09/tax-cuts-dont-lead-to-economic-growth-a-new-65-year-study-finds/262438/

Well into the 1950s, the top marginal tax rate was above 90%. Today it's 35%. But both real GDP and real per capita GDP were growing more than twice as fast in the 1950s as in the 2000s. At the same time, the average tax rate paid by the top tenth of a percent fell from about 50% to 25% in the last 60 years, while their share of income increased from 4.2% in 1945 to 12.3% before the recession.

<snip>

For years after World War II, the U.S. was a singular economic powerhouse with an enormous manufacturing base that employed nearly 40% of the economy. For the last decade-plus, the economy has grown at a considerably slower pace and the gains have accrued to a smaller and more elite share of the economy.

Well, I said "average person".

I would not say "average person" about somebody that you described above.

I never meet somebody who would have 2 jobs (except doctors), not to mention 3 jobs.

Your personal incredulity in no way negates the evidence already shared herein. Larger percentages of people today are struggling to make subsistence wages, are underemployed, and struggling to get by. Burying your head in the sand or saying, "well, I've never met anyone like that" doesn't magically erase that fact. I need to also point out that the example of people having multiple jobs was illustrative of a broader point I was making and not core to my stance.

 

While that situation of needing multiple jobs to survive applies to 5-10% of the population (more than 30 million people), and hence is small in relative terms, it's still a huge amount of people facing unnecessary struggle, especially when viewed in context of the number of Americans who face near poverty and/or unemployment at some point in their lives.

 

http://www.cbsnews.com/news/80-percent-of-us-adults-face-near-poverty-unemployment-survey-finds/

80 percent of U.S. adults face near-poverty, unemployment, survey finds. Four out of 5 U.S. adults struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives.

http://www.feedingamerica.org/hunger-in-america/impact-of-hunger/hunger-and-poverty/hunger-and-poverty-fact-sheet.html

* In 2013, 45.3 million people (14.5 percent) were in poverty.

* Under the Supplemental Poverty Measure, there are 49.7 million people living in poverty, nearly 3 million more than are represented by the official poverty measure (47.0 million).

* In 2013, 49.1 million Americans lived in food insecure households, including 33.3 million adults and 15.8 million children.

 

How do they do it? Day has 24 hours. And regular job takes 8h.

Exactly. That's sort of been my point. You implied they were not saving due to bad choices. I helped you correct this misconception by sharing there are far more parsimonious reasons for the lack of saving. All income being spent to survive, as one.

 

Here when somebody is offering too low wage to survive in single job (which means minimal wage), people refuse taking such job

The job situation is clearly different where you live and is not a valid comparison to what I and others are talking about here. This might help to explain your disagreement with some of the facts and discussion points being shared here. I'm trying to give you the benefit of the doubt here, as denying the existing of the problem is a bit like denying human climate change or evolution. That said, and if things are truly better where you live, I wonder why that is. Is it perhaps because you live in a country with exactly the types of protections and regulations that many of us here are advocating be replicated here in the US?

[John Cuthber]

I should point out something which is raised by Sensei's graph of tax receipts as a % of GDP.

 

It's true that the government is getting roughly the same share as it has since WWII

However that tax is increasingly being raised from people who are the "squeezed middle" rather than the very rich.

 

I earn roughly the national average salary (so I'm better off than most- lucky me), but my take home pay is being cut by the government, while the super rich are largely unaffected.

[iNow]

The job situation is clearly different where you live and is not a valid comparison to what I and others are talking about here. This might help to explain your disagreement with some of the facts and discussion points being shared here. <snip> if things are truly better where you live, I wonder why that is. Is it perhaps because you live in a country with exactly the types of protections and regulations that many of us here are advocating be replicated here in the US?

Further to this point I made above:

 

http://www.vox.com/2015/1/20/7547159/real-state-of-the-union-maps-and-charts

 

America is a bad place to be poor

 

Using detailed financial data from the Luxembourg Income Study, Matt Bruenig shows where material living standards are higher than in the United States for people at different points on the income distribution. The median (i.e., 50th percentile) American is tied with the median Canadian to be the best-off median person in the world. But for the poorest ten percent of the population, life is better in 14 other countries.

 

The United States is nearly the richest country on Earth on a per capita basis, but our material resources are distributed less equally than those in other English-speaking countries and much less equally than those of northern European countries. Consequently, while American living standards for people in the top half of the income distribution (i.e., the kind of people who run the political system and the media) are basically the best in the world, those for people in the bottom third are not so impressive.

This is a discussion about reducing inequality and addressing the self-reinforcing negative social issues that result, not about reducing the wealth of the extremely wealthy top 85 individuals in the world who own more than the bottom 3.5 billion people combined.

 

http://www.cnbc.com/id/101348398

Quick update. Seems this number has worsened since last year. Turns out that it only takes the top 80 wealthiest individuals (five lower) to account for more wealth than the bottom 3,500,000,000 combined.

 

http://www.nytimes.com/2015/01/19/business/richest-1-percent-likely-to-control-half-of-global-wealth-by-2016-study-finds.html

[Sensei]

Well, no actually. I didn't claim that. If you disagree, feel free to prove otherwise using the handy quote feature offered by this site. To save you some time, I'll just remind you that I said higher tax revenues would allow for greater opportunities to invest in the things I referenced.

You're right. I added by myself "wise", or "not wise" use of money basing on historical data. Extrapolation and judgment on my side.

 

Again, red herring, or at the very least nonsequitur.

It's discussion.

I have full right to comment your claim:

"These revenues would reduce the deficit, allow for greater investment in social goods like healthcare, education, retirement, infrastructure, and more."

and fix it to proper in my opinion:

"These revenues would allow for greater investment in weapons, wars etc."

 

Look, we are just arguing on use of money gathered from taxes.

 

I don't have (yet) brainwashed brain, and can properly estimate what government will do in future..

 

If you want to fooling yourself and overestimate professionalisms and good will of your government, your choice. Some says that self lying keeps people sane.

 

Listen. I don't disagree with you that too much is being spent today on war and related activities and that this money can be better spent on social goods.

Agreement. But there must be real good will, not for public demagogic BS regularly applied near election time..

 

Even with that stipulated, none of that negates the point I'm actually making here that one approach to addressing the vast inequality we see today is to restore tax rates on the top 1% back to what they were during times of great shared prosperity prior to the 1970s.

You're making serious mistake joining old "prosperity time" with "high taxes to richest people", like they would be synonym.

And suggesting that increased taxes (again) will fix arised already inequalities.

While it will not have such results.

 

Look, I am selling and buying stocks for years 10+ though Internet.

I wrote couple applications for stock market trading.

I can find a way to bypass your government taxes in a while.

If I can do it being here, the same can do any real financial adviser in your country, if such tax would be established.

Increase of taxes for rich is pure demagogic. It sounds right (if you're poor), but have the most of time reverse result.

See France example 75% tax introduced recently after Hollande took seat in 2012.

 

As I said already twice, production in western countries were killed, and moved to cheaper labor countries.

Increasing tax for rich people won't remove inequalities. But learning new technologies & science can.

But learning has to be free of charge for everybody. Paid schools are increasing inequalities, because members of lowest classes can't afford learning and are excluded.

 

See above. Again, pre-1970s, with the effect most obvious in the 1950s.

At that time you had your own real production. Now it's in China, Taiwan and Japan..

And it won't return.

You can only make more software programmers (they are the cheapest to make), designers 3d (now in 3d printers time they will be really needed), and similar high-tech, high knowledge jobs.

But everybody must be able to participate (free schools and free university).

 

Your personal incredulity in no way negates the evidence already shared herein. Larger percentages of people today are struggling to make subsistence wages, are underemployed, and struggling to get by. Burying your head in the sand or saying, "well, I've never met anyone like that" doesn't magically erase that fact. I need to also point out that the example of people having multiple jobs was illustrative of a broader point I was making and not core to my stance.

 

While that situation of needing multiple jobs to survive applies to 5-10% of the population (more than 30 million people), and hence is small in relative terms, it's still a huge amount of people facing unnecessary struggle, especially when viewed in context of the number of Americans who face near poverty and/or unemployment at some point in their lives.

I was talking about "average person" and you gave example of 5-10% of population. That's clearly unfair.

 

I don't deny existence of such persons with financial problems.

I don't deny existence of prostitutes, gangsters, thief, homeless, illness, etc. etc. persons.

Simply their case is not "average" in my opinion.

It's as far as I can see from average.

See John Cuthber comment, he said he is average. At least average in UK.

 

You implied they were not saving due to bad choices.

Picking bad school, picking truancy instead of learning at teenage is also (bad) choice made. We have even adage about it. It can be summarized to "who is hard working learning as teenage, has easy life as adult, and who is playing as teenage, he/she has hard life as adult" or something like that.

 

The job situation is clearly different where you live and is not a valid comparison to what I and others are talking about here.

Local situation here is meaningless to judge whether increasing taxes to rich people is right move or not. Whether it will fix situation, or not.

 

This might help to explain your disagreement with some of the facts and discussion points being shared here. I'm trying to give you the benefit of the doubt here, as denying the existing of the problem is a bit like denying human climate change or evolution. That said, and if things are truly better where you live, I wonder why that is. Is it perhaps because you live in a country with exactly the types of protections and regulations that many of us here are advocating be replicated here in the US?

We have between 15-20% regular unemployment rate. People don't run for work and taking everything what they can, just to work. People don't do everything for money.

Schools and majority university are free of charge.

It's really hard to find somebody below 30 years old without Master's degree (even people that didn't pass in high school, that I know, ended up with Master's degree later).

If we divide quantity of houses/apartments in the country by quantity of people there is rate 0.356.

So basically 35.6% of people are owners of houses/apartments (in 80-90% owned by them, not loan). Each house/apartment costs between 100k-200k usd equivalent.

If we count one man, one women, and one children per family, basically nearly everybody has their own house/apartment.

This disallows internal migration. People are working where they have their house/apartment within 1-2 km is the most optimal.

Typical renting apartment person is student at university in major city.

Houses/apartments are inherited from grandparents to grandchild typically. So typical average 20-30 year old person is starting with 100-200k usd asset in pocket.

There is no run for money, no run for job, at any cost.

Although some that migrated to UK, are starting behaving like that. Which is sad.

Bank cannot take you house/apartment, even if you stop paying installment from loan without giving you spare apartment.

So banks avoid it at any cost. In 2012 year there was 0.057% evictions (1/1753 apartments).

You need to try very hard to be evicted. There are "vacations" from paying loan. You can take it for couple years (2 y+ IIRC). So basically you can safely not pay loan for 2y+ and nothing happens.

Evictions are for alcoholic, narcotics addicted people etc. Typical loan from apartment is $350 per month and 30 years. For 2 adults hired, not a problem to pay, even with the lowest salary.

Edited January 21, 2015 by Sensei

[iNow]

Look, we are just arguing on use of money gathered from taxes.

Understood. We also seem to agree that more revenues from tax should be spent on social goods than on military and defense, at least in relative terms. You just seem to have a different opinion from me and many economists that returning top tax rates to those we had for decades before the 1970s would help to decrease the inequality we're currently seeing and would open greater opportunity for investment in those social goods like education, healthcare, infrastructure, etc.

 

But there must be real good will, not for public demagogic BS regularly applied near election time..

Could not agree with you more here.

 

You're making serious mistake joining old "prosperity time" with "high taxes to richest people", like they would be synonym.

That's not what I'm intending to convey. I'm suggesting that higher tax revenues on the top 1% would help reduce the inequality we see and allow greater opportunity for investment in social goods. When I mention economic prosperity during times of high taxes on the top 1%, it's primarily to rebut the inherent suggestion in your claims that such a move would badly harm the economy.

 

Increasing tax for rich people won't remove inequalities. But learning new technologies & science can.

But learning has to be free of charge for everybody. Paid schools are increasing inequalities, because members of lowest classes can't afford learning and are excluded.

<snip> But everybody must be able to participate (free schools and free university).

<snip>

[Where I live,] Schools and majority university are free of charge.

It's really hard to find somebody below 30 years old without Master's degree

<snip>

If we count one man, one women, and one children per family, basically nearly everybody has their own house/apartment.

<snip>

Houses/apartments are inherited from grandparents to grandchild typically. So typical average 20-30 year old person is starting with 100-200k usd asset in pocket.

<snip>

Bank cannot take you house/apartment, even if you stop paying installment from loan without giving you spare apartment.

So banks avoid it at any cost. In 2012 year there was 0.057% evictions (1/1753 apartments).

You need to try very hard to be evicted. There are "vacations" from paying loan. You can take it for couple years (2 y+ IIRC). So basically you can safely not pay loan for 2y+ and nothing happens.

As is very clear, your regulations and social safety programs are different where you live than here in the US. Here, banks can and very often do take peoples houses. Here, foreclosures are common and evictions happen by the hundreds or thousands every single day. Here, very few are fortunate enough to be born into a family where they can inherit a house and home ownership rates are at their lowest in decades. Schools are not free, and in fact college costs have been growing at astronomical rates (rising 1,120% over the last 30 years, far exceeding the rate of inflation and wage growth by several orders of magnitude). Healthcare is not free, and one illness could destroy a family since they so often cannot afford to pay for it (while Obamacare has mitigated some of this risk, medical costs still account for more than 50% of all bankruptcies declared in the US).

 

Okay. Moving forward, let's say we agree that healthcare should be provided to all citizens. Let's say we agree homelessness is easy to fix, homes should be provided, and that evictions should be minimized. Let's say we agree that education should be provided to all citizens and at no cost and for obvious reasons of future return and innovation. I think we actually do agree on most of that, especially given how frequently you've mentioned it in your posts.

 

Now, let's say we find a way to get US representatives in congress to proceed with all of these things, and even reduce expenditures on military and defense to help pay for some of it, but that won't cover it all. A revenue adjustment is still needed to cover these additional costs. So... With this context set, wouldn't you agree that returning tax rates on the top 1% to what they were just 30 years ago (and closing the countless loopholes and corporate give-aways) could help to make up for that gap, avoid additional deficit, and consequently make the lives of millions of people in the US significantly better and much less unequal as a whole?

Edited January 21, 2015 by iNow

[Sensei]

As is very clear, your regulations and social safety programs are different where you live than here in the US. Here, banks can and very often do take peoples houses. Here, foreclosures are common and evictions happen by the hundreds or thousands every single day. Here, very few are fortunate enough to be born into a family where they can inherit a house and home ownership rates are at their lowest in decades. Schools are not free, and in fact college costs have been growing at astronomical rates (rising 1,120% over the last 30 years, far exceeding the rate of inflation and wage growth by several orders of magnitude). Healthcare is not free, and one illness could destroy a family since they so often cannot afford to pay for it (while Obamacare has mitigated some of this risk, medical costs still account for more than 50% of all bankruptcies declared in the US).

Part of problem in US, and western countries, is that people working in government, officers, are in middle of their career.

They're ex-bankers, ex-financier, ex-[insert some industry employee here],

They're in government just for a while, as long as presidency (just lucky more),

And they are and have to think about their future.

After termination of their jobs in gov they will return to banks, or industry branch they belong to.

They're highly well-connected, therefor regulations made by them won't hurt industry they're part of.

Instead their regulations will be supporting their industry, and harmful for public and country.

As a reward they will find job back after government career.

 

People that will create laws and regulations harmful to industry but good to public, won't find job after ending of their career in government.

 

Schools are not free, and in fact college costs have been growing at astronomical rates (rising 1,120% over the last 30 years, far exceeding the rate of inflation and wage growth by several orders of magnitude).

Dreadful.

Do you Americans want to have better schools? Vote some quantum physicists for president the next time..

 

Here the latest idea of government was free of charge books for all primary school kids. Bought/printed by government printers.

Educational industry was not happy..

Great idea. Like I would invent this idea by myself.

 

Healthcare is not free, and one illness could destroy a family since they so often cannot afford to pay for it (while Obamacare has mitigated some of this risk, medical costs still account for more than 50% of all bankruptcies declared in the US).

The more I am learning about US, the more it looks like hell on Earth..

 

That's plain disgusting to make business on somebody else illness and misfortune..

The more diseased people, the more doctors will earn. Your healthcare is in disease by itself.

 

The same with private prisons. Disgusting. Owners of them beg for more people committing crimes (because it means grow of their "business").. ! I wouldn't be surprised to see them influencing politics to increase penalties..

While in goodness of public community exactly reverse direction is wanted. To reduce criminal activity.

Creation of homeless is straight way to creation of criminals (here loan installment is lower price than renting apartment, so somebody who can't afford renting apartment can't afford buying apartment either. And price of imprisoning person is the highest from all loan installment and renting apartment per month!)

 

Now, let's say we find a way to get US representatives in congress to proceed with all of these things, and even reduce expenditures on military and defense to help pay for some of it, but that won't cover it all. A revenue adjustment is still needed to cover these additional costs. So... With this context set, wouldn't you agree that returning tax rates on the top 1% to what they were just 30 years ago (and closing the countless loopholes and corporate give-aways) could help to make up for that gap, avoid additional deficit, and consequently make the lives of millions of people in the US significantly better and much less unequal as a whole?

 

One thing is fight with inequality, another thing is fairness and equal rights and laws to everybody.

My personal opinion is such that there should be one low tax to everybody regardless of their income, f.e. 10%.

Different taxation basing on income is encouragement to making frauds and bypassing law.

The more complex law, the more options, the harder to judge. And lawyers, judges, financial advisers, accountants etc. etc. have job. They would be unemployed without all these ridiculous complicated laws!

 

I invented new taxation method using new IT technologies:

taking flat tax from all money received on bank account automatically.

Basically whenever somebody transfer any money to account, bank is sending 10% to government automatically, and remaining 90% is going to owner of account.

No need to fill tax form each year - it would be already paid and received by government.

Edited January 22, 2015 by Sensei

[iNow]

The more I am learning about US, the more it looks like hell on Earth..

Well... It's really not. Not relative to many other nations on the planet,and especially not for the wealthiest among us, but definitely it's worse than at least 14 other countries for the poor and those in the middle who face hell in various forms each and every day.

 

More importantly, it doesn't have to be this way. The situation we face today is entirely self-inflicted and the direct result of specific policy decisions and legislation.

 

There are clear actions we could take to vastly improve the lives of millions and millions of people. Returning tax rates on the top 1% closer to their historical norms is one such action, as is closing tax loop holes for the wealthy and corporations, investing in education, healthcare, and infrastructure, etc. These are all logical, intelligent, and evidence based steps that history shows would go a very long way toward ameliorating many of the problems currently being here discussed.

[Sensei]

but definitely it's worse than at least 14 other countries for the poor and those in the middle who face hell in various forms each and every day.

I am not bothered about wealthiest, only the poorest people..

 

More importantly, it doesn't have to be this way. The situation we face today is entirely self-inflicted and the direct result of specific policy decisions and legislation.

That's true. You as a nation made this.

 

There are clear actions we could take to vastly improve the lives of millions and millions of people.

But they're not the one you're suggesting..

 

Returning tax rates on the top 1% closer to their historical norms is one such action, as is closing tax loop holes for the wealthy and corporations, investing in education, healthcare, and infrastructure, etc. These are all logical, intelligent, and evidence based steps that history shows would go a very long way toward ameliorating many of the problems currently being here discussed.

Repetition doesn't make it true.

 

Americans must stop running for money at any cost.

While you're running, you are trampling on human bodies, that didn't survive this run..

Politics must stop being sockpuppets in hand of corporations, lobbies, various group of interest etc.

 

ps. Do you saw "Too big to fail"? http://www.imdb.com/title/tt1742683/

If not, watch it on VOD, prior replying..

Edited January 22, 2015 by Sensei

[iNow]

But they're not the one you're suggesting.

You're going to need to expound upon this. I feel I've done a nice job of supporting my positions with evidence, and instead of rebutting them or showing them to be in any way flawed, you've basically just responded, "Nuh-Uh!" That's not good enough, I'm afraid.

 

Americans must stop running for money at any cost.

Pay attention. We're discussing Americans running just to survive and keep their head above water, not running solely for money and at "any cost."

 

I don't think we are as far apart on this issue as you seem to believe or suggest in your replies. It's just that we are describing life in very different nations with very different circumstances and very different policy change needs.

[overtone]

 

 

Do you think this in fair? 90% tax for the richest?

Yes.

 

That's a marginal rate graph - it only applies to income above a certain level. The rich paid no more on their first 50k per year than anyone else.

 

It prevents the otherwise inevitable compounding inequality that damages market based economies, charges the major beneficiaries for the the cost of the government, and imposes not the slightest actual hardship on the targeted income class.

 

And the graph is obviously missing most of the tax burden on the working poor - look at the rate in the 1980s, it's 0 for the lowest incomes, in a time when the Social Security tax rates had just been doubled. The poor were paying at least 12% on the margin, for Social Security alone.

[Sensei]

Increasing tax rates above 40% causes inevitable tax evasion.
http://en.wikipedia.org/wiki/Tax_evasion

i.e. lower income for government than before introduction of tax.

Our government did this mistake with excise duty for alcohol and cigarettes and now couple quarters in a row there is lower income than it used to be.

Government lost in one year complete control over two digits percentage of market.

People are now making their own cigarettes. Once they learned how to do it (and media spread words), they're lost.

Nice example of incompetence.

 

Funny, you're on top of the list already:

[overtone]

 

 

Increasing tax rates above 40% causes inevitable tax evasion.

Since the US is already tops in tax evasion, despite lower rates of taxation, we have little to lose by increasing them.

 

Besides, the US used to be able to enforce its tax laws better than that - so we know how to do it, just as we know how to tax rich people. It has been done, in the US.

 

And here is where taxing the rich pays off - there are many fewer of them, and so they are easier to keep track of. Tax cigarettes, and you have to prevent tens of millions of US citizens all over the place from committing a petty and hardly detectable crime. Tax rich people's incomes, and evasion is a large crime with repercussions among a couple of million people who are mostly connected to each other.

[iNow]

Increasing tax rates above 40% causes inevitable tax evasion.

Okay, two points.

 

One - You suggest a threshold at 40%, after which tax evasion becomes inevitable. You have shared no data supporting this assertion. Why 40% and not 39% or 42%... or better yet, why not 1%? You seem to have pulled this number completely out of thin air. It's an interesting opinion I suppose, but thus far is little more than that and should be regarded as such.

 

Two - Tax evasion ability and rate at which it occurs is a function of tax system design and enforcement, not a function of the tax rate on various income levels (which may play a slight role in magnitude, but not so significant a role in frequency... see below). Further, addressing this problem of tax evasion that you cite is simple, and it has nothing to do with anchoring ourselves to a historically low rate on the top 1%. All one needs to do is design a better tax system that eliminates loopholes and minimizes the ways people can use to avoid paying then resource it adequately. If you do this, the evasion issues you reference can and will be brought very nearly to zero.

 

http://www.economist.com/node/21543184

Does raising taxes on those who are doing well economically stifle growth and slow down the recovery? That depends on how rich people behave when their taxes rise. Do they work less when they are allowed to keep a smaller chunk of their income? Do they move their money offshore? Do they take a larger share of their earnings in forms that are more lightly taxed? Economists have looked at the effects of many past changes in tax rates to try to answer such questions.

 

Martin Feldstein, a Harvard economist, found that the taxable income of the rich adjusted dollar-for-dollar with tax rates when America cut its highest tax rate from 50% to 28% in 1986, so that tax revenues stayed the same. This would suggest that raising top tax rates is likely to produce little extra revenue, while distorting economic behaviour further. But others have found that this adjustment in taxable income is driven largely by people altering when and how they take their income in order to minimise their tax burden. For instance, there was a big fall in taxable income after tax rates rose in 1993; but most of this seems to have come from a few rich people hurrying to cash in their stock options before taxes rose.

 

Thomas Piketty of the Paris School of Economics, Emmanuel Saez of the University of California, Berkeley, and Stefanie Stantcheva of MIT argue in a new paper that this is why few studies have been able to show any significant long-term effect from raising top tax rates. But such avoidance, they say, is merely a symptom of a poorly designed tax system. It is silly to have a high tax rate while simultaneously giving people many ways to avoid paying it. So the first task of tax reformers must be to minimise such opportunities by having a broader tax base, better enforcement and similar tax rates for different kinds of income.

 

That is relatively uncontroversial. But their other finding is likely to raise a few eyebrows. They reckon that if the tax system were reformed to make evasion impossible, the top tax rate might be able to rise to as much as 83%that is, to levels last seen in the 1960swithout hurting the economy.

.

Again, history can serve as a guide, too:

 

http://www.usatoday.com/story/opinion/2015/01/20/millionaire-tax-middle-class-wages-investments-rich-country-column/21812457/

From the Great Depression in the 1930s to 1986, our country experienced unprecedented economic growth and opportunity, and the American Dream was within reach for almost everyone. Over that period, the top income tax rate was as much as 94% and never less than 50%.

[John Cuthber]

Oh come on... can't you do better than that?

More money sloshing round will give rise to more money not being collected as tax.

So, lets have a look at the corresponding GDP

 

US GDP $16 Tn tax loss $0.34 Tn

Brazil GDP $2 Tn tax loss $0.28 Tn

Italy GDP 2.1 Tn Tax loss $0.24Tn

Russia GDP $2 Tn tax loss $ 0.22 Tn

Germany GDP $3.7Tn tax loss $0.22 Tn

France GDP $2.8Tn Tax loss $0.17Tn

China GDP $9.2 Tn Tax loss $0.13Tn

UK GDP $2.7 Tn Tax loss $0.11Tn

Spain GDP $1.4 Tn Tax loss $0.11 tn

 

And lets turn those into percentages (assuming I have got the arithmetic right- feel free to check)

 

 

Brazil 14.00

Italy 11.43

Russia 11.00

Spain 7.86

France 6.07

Germany 5.95

UK 4.07

US 2.13

China 1.41

 

Suddenly, the US are no longer even close to leading the race.

 

And now, lets look at maximal personal tax rates
(from here)

http://en.wikipedia.org/wiki/List_of_countries_by_tax_rates

 

Country Tax lost as %GDP Max tax rate

Brazil 14.00 27.5

Italy 11.43 43.0

Russia 11.00 30.0

Spain 7.86 52.0

France 6.07 75.0

Germany 5.95 45.0

UK 4.07 45.0

US 2.13 55.9

China 1.41 45.0

 

 

OK, there is technically a correlation in those data: lower tax rates tally with higher rates of avoidance.

But which way does cause and effect work here?

Are governments dropping tax rates in the hope of reducing evasion?

In any event, the effect is small- most of the variation (about 70%) is due to some other factor(s).

 

 

More importantly, there is definitely not any sort of clear cut-off at 40% (or any other value).

Also there's nothing on that wiki page that indicates some magical significance to the 40% level.

Did you just pull it out of your ear?

 

BTW, sorry for the scrambled format of the tables- they were fine in XL.

Edited January 22, 2015 by John Cuthber

[Sensei]

http://en.wikipedia.org/wiki/Tax_evasion_in_the_United_States

 

"The Internal Revenue Service (IRS) has identified small business and sole proprietorship employees as the largest contributors to the tax gap between what Americans owe in federal taxes and what the federal government receives. Rather than W-2 wage earners and corporations, small business and sole proprietorship employees contribute to the tax gap because there are few ways for the government to know about skimming or non-reporting of income without mounting more significant investigations."

 

"A more recent study estimates the 2008 tax gap in the range of $450 to $500 billion, and unreported income to be approximately $2 trillion. Thus, 18 to 19 percent of total reportable income is not properly reported to the IRS"

 

"In 2012, the IRS assessed civil penalties in 37,910,493 cases and 4,994,926 abatements."

 

This clearly show that tax evasion mentioned by government is only detected one (imagine really undetected) and it's not detection of the richest but rather ordinary Joe Smith, 1 per 5 ordinary taxpayers.

W-2 wage earners and corporations can use such sophisticated methods that they will largely remain undetected.

 

"The typical tax evader in the United States is a male under the age of 50 in the highest tax bracket and with a complicated return"

 

"2013: Big Four accounting firm Ernst & Young agreed to pay federal prosecutors $123 million to settle criminal tax avoidance charges stemming from $2 billion in unpaid taxes from about 200 wealthy individuals advised by four Ernst & Young senior partners between 1999 and 2004."

Edited January 23, 2015 by Sensei

[iNow]

Nobody has denied that tax evasion occurs, so that's all just a big red herring.

 

The basic point is that among other things part of what's driving today's historically high inequality is today's historically low tax rates on the top 1%., and that one step (out of several) we could take to begin addressing this issue is to simply return those tax rates on the top 1% to what they were before the 1970s while taking steps to close loopholes and update the system to minimize avoidance schemes.

 

In response, you claimed that revenues would not go up if rates were brought above 40% due to increased tax evasion, and clearly it's been shown that your point was inherently flawed and thus entirely irrelevant to the discussion taking place.

[John Cuthber]

When Joe Public doesn't pay his taxes the IRS/ HMRC consider it to be tax evasion, and they include it in the figures.

When Mr Rich moves his wealth to an offshore account they consider it to be tax avoidance- which is "legitimate" so it's not counted in the figure.

Of course Joe Public is the one who seems to be not paying his fair share.

Also, while politicians on both "sides" pledge to cut taxes, is it reasonable to imagine that some people will come to think that tax is a "Bad Thing" and so fell morally obliged to evade payment?

And, since he knows that the Rich People dodge their taxes- who can blame him for feeling justified in doing so?

The solution to all of those issues is to fix the loopholes and collect the taxes due.

[MigL]

Very good point John.

If Joe Public doesn't pay his $20000 in taxes, it is serious but doesn't amount to much.

If Mutt Rimney ( names changed to protect the innocent ) only pays five times that amount on say, a hundred million, that is a problem.

The first step should be to eliminate the tax loopholes that Mutt's accountants and layers make available to him.

[overtone]

And now, lets look at maximal personal tax rates

(from here)

http://en.wikipedia....es_by_tax_rates

- - - - -

US = 55.9% (max of federal+state+local)

That's not a useful number for comparison with other countries, or even between States of the US - key omissions, such as the manner in which "income" is determined in the first place or the nature of residency etc, make it almost meaningless.

 

 

 

 

OK, there is technically a correlation in those data: lower tax rates tally with higher rates of avoidance.

But which way does cause and effect work here?

I would guess correlation with a common root, not cause and effect.

 

When rich people control the government, as great inequality makes all but inevitable, they see to it that their personal and effective tax rates are lowered; lowering the nominal high end rates, writing in loopholes and breaks, and avoiding payment through illegal means with impunity, are all on the menu of means.

Edited January 27, 2015 by overtone

[iNow]

If Joe Public doesn't pay his $20000 in taxes, it is serious but doesn't amount to much.

If Mutt Rimney ( names changed to protect the innocent ) only pays five times that amount on say, a hundred million, that is a problem.

The first step should be to eliminate the tax loopholes that Mutt's accountants and layers make available to him.

The situation is probably worse than most people even realize:

 

http://www.thefiscaltimes.com/Columns/2015/01/27/Taxing-Wealthy-Promotes-Economic-Growth

[John Cuthber]

That's not a useful number for comparison with other countries, or even between States of the US - key omissions, such as the manner in which "income" is determined in the first place or the nature of residency etc, make it almost meaningless.

 

 

 

 

I would guess correlation with a common root, not cause and effect.

 

When rich people control the government, as great inequality makes all but inevitable, they see to it that their personal and effective tax rates are lowered; lowering the nominal high end rates, writing in loopholes and breaks, and avoiding payment through illegal means with impunity, are all on the menu of means.

Fair point, feel free to do a better job.

The real killer was that Sensei posted those figures without taking account of the fact that the US simply has more tax to evade, so it's almost bound to get more evasion.

 

And there are certainly factors in common like those you suggest.

I was just pointing out that the weak correlation didn't prove (or, even, strongly suggest) anything

[mothythewso]

Quoted from above, if anybody wants to take credit for it, be my guest.

And here is where taxing the rich pays off-there are many fewer of them, and so they are easier to keep track of. Holy Mother of Pearl!

Couple of thoughts.

College is the entry level for most jobs, government decides to help out by offering more loans, more people therefor attend college, so colleges raise their tuitions (supply-demand curve), so recent grads are up to their ears in debt when they graduate, then they find that they can't get a good-paying job with their gender studies degree, Meanwhile, auto mechanics, electricians, plumbers, dry-wall installers, those with other useful skills that didn't cost them 20 grand a tear to acquire, are doing well.

How many people on a payroll are willing to put in the time, to take the risks involved in starting up their own business. If they fail, and most fail at least once, who cares? But if they succeed, well, then why don't the cheap bastards want to share?

Tax evasion? Goes on all the time. But most successful business owners I know actually supply jobs to others, pay their good employees well, generally pay higher taxes, DO pay double Social Security taxes, pay full freight to send their sons or daughters to college because, after all, somebody's got to pay for all those loans.

CEO's who make ridiculously more than their workers? Well, if the Company's successful because of their talents, and the workers are well paid, what's the problem? One simple solution; tie CEO pay to performance.

Capital gains. Somebody's got to invest in new companies. Somebody's got to take a risk. If they make a profit with money that usually already been taxed once, why should they have to share a large part of their profits with those who don't want to take the risks, or do the necessary due diligence, or lack the initiative. Well, you say, they can write off their losses when they fill out their taxes. A whole $3000 worth. Believe me, I know!

Look, I'm not saying that there aren't inequities in our system. They should be addressed. But the rich aren't that numerous, nor do they have enough money, to solve all the country's problems. And that last statement IS opinion, I can't back it up with facts. But that's what opinion columns are for.

[John Cuthber]

"But most successful business owners I know actually supply jobs to others, pay their good employees well"

OK, fine, but we are complaining about the ones who pay their staff 100 times less than they pay themselves, yet still feel they should cheat on their taxes.

 

"Well, if the Company's successful because of their talents, ... "

Again, that's not the problem.

Most companies "do well" as a result of luck, yet most people attribute their success to "talent" even when that's clearly not the case.

"One simple solution; tie CEO pay to performance. "

That's a nice idea, but how do you measure it?

 

The problem is that, if you link CEO pay to some parameter, that's what the CEOs will maximise.

 

"Somebody's got to take a risk"

​not much of a risk- that's what limited liability companies are for.

 

"nor do they have enough money, to solve all the country's problems. And that last statement IS opinion, I can't back it up with facts."

No.

They really do have the money.

Let's do a simplistic analysis.

 

The top 0.1% of the richest US citizens own 22% of the wealth, and there are not many problems you couldn't solve with, say, 10% of that.

 

If they paid as little as 10% tax they would hand the government 2% or so of the total wealth of the US.

http://en.wikipedia.org/wiki/Financial_position_of_the_United_States

that's something like 2.5 trillion dollars.Compare that with

http://en.wikipedia.org/wiki/Military_budget_of_the_United_States

Call it 4 times the security budget- from just 10% tax.

 

So, you are welcome to your own opinion, but the facts don't support it.

[iNow]

"But most successful business owners I know actually supply jobs to others, pay their good employees well"

OK, fine, but we are complaining about the ones who pay their staff 100 times less than they pay themselves, yet still feel they should cheat on their taxes.

As I shared earlier in the thread, the ratio is actually quite a bit higher than 100:1, which only makes your point here that much more poignant.

 

http://www.scienceforums.net/topic/87282-how-to-reduce-wealth-inequality/?p=846628

[overtone]

Couple of thoughts.

College is the entry level for most jobs, government decides to help out by offering more loans, more people therefor attend college, so colleges raise their tuitions (supply-demand curve), so recent grads are up to their ears in debt when they graduate, then they find that they can't get a good-paying job with their gender studies degree, Meanwhile, auto mechanics, electricians, plumbers, dry-wall installers, those with other useful skills that didn't cost them 20 grand a tear to acquire, are doing well.

Those aren't thoughts, they are Fox News talking points and Rush Limbaugh canards.

Just run the list: College is not the entry level for most jobs; Government used to be helping out by providing grants, the loans are a downgrade caused by choosing to help out less rather than more (and the terms are onerous to the point of predatory); The reduction in government help discourages people from going to college, but desperation from the general wage erosion and unemployment forces risktaking, so a lot of unprepared and unintellectual people undertake college simply as a job credential - no learning involved, high debt load; meanwhile the vocational programs formerly available in high schools and union halls have been scrapped for tax breaks and executive compensation - so the next generation of electricians and plumbers and drywall installers is financing their training via debt and facing uncertain employment with wage stagnation anyway (you really think entry level drywall installers have been "doing well" in the US? ). Rule of thumb: if you make something more difficult and expensive and less rewarding and lucrative, fewer people will acquire it.

You can whine all you want about people's lack of initiative in mooching off to college rather than acquiring trade employability - say, machinist skills - but my local community college originally stocked their student loan paid machinist training shops with equipment from discontinued high school vo-tech programs. The kids in those high schools are being force-marched through college prep, not only for status delusion but in part because college prep is cheaper than machine shop, or auto shop, or other vocational education. You'd have to tax rich people, to pay for machine shop for poor kids. And so when the whining pauses for a minute the realization hits - we're damn short of skilled machinists. All those high school vo-tech and GI Bill and union hall trained guys are getting old, and shift work is hard on the health of people with the most expensive and least effective medical care system in the Western industrialized world. And so the entire economy takes a hit - because the benefits of having a steady supply of new machinists to take over the new machines did not just accrue to the machinists themselves, but also to the industry and the entire economy in many ways, and those beneficiaries decided to stop paying for them.

 

Capital gains. Somebody's got to invest in new companies. Somebody's got to take a risk. If they make a profit with money that usually already been taxed once, why should they have to share a large part of their profits with those who don't want to take the risks, or do the necessary due diligence, or lack the initiative

1) They have to pay for the society that provided them the opportunity. That's just straight free market analysis - if the beneficiaries of a good or service don't pay for it, you get market distortion and inefficiency. 2) This bs about "money - already- taxed once" is a wingnut meme - emptyheaded noise. What's next, yak about death taxes? 3) Mitt Romney never took a risk as great as the average student loan borrower in his entire life. Neither did Sam Walton's children. Neither did the Koch brothers. Neither did Lloyd Blankfein, Hank Paulson, Richard Cheney, or a single one of Nazi Joe Bush's grandchildren. An executive with stock options and a golden parachute is taking no actual risk whatsoever.

 

But the rich aren't that numerous, nor do they have enough money, to solve all the country's problems.

They are numerous enough, and monied enough, to have soaked up the entire increase in productivity of the entire US economy since about 1978. They have removed an extra third or more of the country's wealth from general circulation, beyond what they had sequestered then. So maybe they can't solve all the country's problems, but they sure have created a lot of them. Inequality at the current US level is lethal to prosperity - banana republic economics creates banana republic society, banana republic politics, a banana republic.

 

 

CEO's who make ridiculously more than their workers? Well, if the Company's successful because of their talents, and the workers are well paid, what's the problem?

And if the company isn't successful, or the workers are paid subsistence wages and abused by their working conditions and in danger of losing their jobs, the problem is obvious. Right?

 

 

One simple solution; tie CEO pay to performance.

CEOs are getting paid ten times as much as they were a generation ago. Let's assume, then, that you would support an effective and overall gross income tax rate of up to 90% on the CEO of any company that isn't ten times as big and hiring ten times as many employees and ten times as profitable as it or comparable companies were then.

Edited January 27, 2015 by overtone