Define Rich, Part III. What the tax tables of yore say.
By Daniel Becker
Randolph Duke: Money isn’t everything, Mortimer.
Mortimer Duke: Oh, grow up.
Randolph Duke: Mother always said you were greedy.
Mortimer Duke: She meant it as a compliment.
Trading Places 1983
A while ago (an understatement) I posted on the question of what is rich. The first dealt with what issues to consider in defining rich. The second was looking at the issue of getting rich if that is even what one wants to do. The “rat race”. I don’t believe most people really want to be rich. I believe most people when thinking about being rich are thinking about what it would take to remove the fears of events that would make one’s life either very difficult in a world that requires money to remove risk or drastically different from what one’s life was. I’m thinking things like losing a job, debilitating injury or illness possibly resulting in physical disability or Louis Winthorpe III.
This all ties into “The American Dream”. The “Dream” is not just an ideology of governance and social philosophy. It is also a life style and thus requires a specific level of income. I have posted on this issue also and noted just how high in income we have driven this “Dream” such that two people with bachelor’s degrees just starting life together may not be able to have it.
Now that we have entered a period where taxes are on everyone’s minds such that there is serious consensus to raising taxes, maybe we need to see what we had in the past to know what we need now. I am sure most readers are aware of Mike’s work defining what rates appear to effect economic growth the best. If I recall correctly the number for the top 1% was around 65%. I have also suggested that there is a range as to how large a share of the income the top 1% should have. That number for the top 1% is not to be above 15% and not to much below 10%.
I should also mention my postings on taxation’s purpose. Specifically I looked at taxing from the perspective of the legal profession as oppose to the economic profession. The conclusion was that there was one main reason for taxing. It is to fulfill the directive of our constitution: equality of power. It is to assure the concept of one voice one vote. If there was ever a time in our history to raise taxes in order to assure this directive it is now in the age of the Citizens United ruling. President FDR referred to the issue and those with the one voice multiple votes do to their monied power as “economic royalty”. I like that phrase and I wonder why it is not used as are retort to those who use “class warfare” as a guilt trip.
Let’s get started.
I have constructed 4 sets of data using the tax rates of 1936/37, 1945/46, 1965/67 and 2010. I chose 1936 because it is a tax rate increase after the economy had turned north based on Mikes posting. I chose 1945/46 because it is another adjustment that happens right after after WWII. I chose 1965/67 because it is the decrease often spoken of fondly. Of course 2010 is because that is where we are at.
This posting would be hugely long if I post on all 4 periods at once, so I have broken it up. Let me first and I think most importantly note that we people today have no idea just how much we were willing to tax ourselves to have the society that we now refer to as “the good old days”. Not only did we have the tax tables of 1936, that table eventually had a 10% surcharge added to pay for the war. Yes, another reason to consider the generation that fought the 1st and 2nd world wars the greatest generation. There was a 7% surcharge for the Vietnam war, though that number became less as time passed. Still, we knew that if we wanted to do exceptional things, we had to tax ourselves exceptionally. Also, the early taxation made no distinction for single or married, never mind filing joint or separate. Everyone paid the same rate. Most interestingly, with the current table, the people who comparatively get screwed are those who are married and file separately. All the rates kick in at a lower income than even those who are single. The other thing we don’t seem to understand is that all the tax rhetoric we have been hearing since Reagan we’ve heard before virtually to the word.
Andrew Mellon, Treasury Secretary 1921 to 1932 :
Generally speaking, Mellon argued that tax burdens were too high. Steep rates, he insisted, served only to stifle incentive and foster tax evasion. “Any man of energy and initiative in this country can get what he wants out of life,” he wrote. “But when initiative is crippled by legislation or by a tax system which denies him the right to receive a reasonable share of his earnings, then he will no longer exert himself and the country will be deprived of the energy on which its continued greatness depends.”Worse yet, Mellon argued, high rates didn’t even raise money. By encouraging both legal tax avoidance and illegal tax evasion, they eroded the tax base and reduced overall revenue. Lower rates, he said, would actually raise money by spurring economic growth and reducing the incentive for tax avoidance. “It seems difficult for some to understand,” he complained, “that high rates of taxation do not necessarily mean large revenue to the government, and that more revenue may actually be obtained by lower rates.” In particular, Mellon insisted that high rates distorted investment decisions, boosting the popularity of tax-free state and local government bonds. Indeed, Mellon made these tax-free bonds a regular target of his reform attempts, but Congress resisted his plans to eliminate them.
Atlas Shrugged wasn’t even written then! What we don’t hear much of are the original concerns and reasoning for progressive taxation. Teddy Roosevelt:
1906…We should discriminate in the sharpest way between fortunes well-won and fortunes ill-won; between those gained as an incident to performing great services to the community as a whole, and those gained in evil fashion by keeping just within the limits of mere law-honesty.1907 regarding an income tax:…while in addition it is a difficult tax to administer in its practical working, and great care would have to be exercised to see that it was not evaded by the very men whom it was most desirable to have taxed, for if so evaded it would, of course, be worse than no tax at all; as the least desirable of all taxes is the tax which bears heavily upon the honest as compared with the dishonest man.No advantage comes either to the country as a whole or to the individuals inheriting the money by permitting the transmission in their entirety of the enormous fortunes which would be affected by such a tax; and as an incident to its function of revenue raising, such a tax would help to preserve a measurable equality of opportunity for the people of the generations growing to manhood. We have not the slightest sympathy with that socialistic idea which would try to put laziness, thriftlessness and inefficiency on a par with industry, thrift and efficiency; which would strive to break up not merely private property, but what is far more important, the home, the chief prop upon which our whole civilization stands. Such a theory, if ever adopted, would mean the ruin of the entire country–a ruin which would bear heaviest upon the weakest, upon those least able to shift for themselves.
At this moment, I want to mention corporate taxes. There are lessons to be learned from it’s history. I think it is a factor in understand more completely the issue Mike is focusing on: taxation and GDP growth. Wrap your minds around the fact that from 1936 to 1943 there were 6 years that corporate tax collections were greater than personal income tax collections. 1943 was the best year for this as personal income tax collections were 68.1% of the corporate tax collections. Just one year later it flips to corporate tax collections being 75.3% of personal income tax collections. In 1944 $34,543 million in total for the two taxes was collected vs 1943 $16,062 million in total. In fact, personal income taxes remain in the mid to high 40 percent of total revenue collections from 1944 to present. The corporate share of total revenue peaks in 1943 at 39.8% and declines to hover around the 10% level with a few ventures into the single digits. Most notably 1983 the corporate share was 6.2% and 2009 it was 6.6%.
First up is our current tax table. I used the “married filling jointly” as that would be consistent with the other tables. One big rule of this series of postings: DO NOT concern yourself or me about the deductions that exist. They do not matter for this presentation and for all intent and purposes we can consider the income to have already gone through the deduction calculator and is now ready to have the tax table applied. This is because, these tables only apply to adjusted gross income.
You will notice that the table is calculated out to $,1,000,000 of income. I did this in order to keep all the tables going to the same income level. The 1936 table actually has rates for incomes up to $8 million. That is $8 million in 1936. (Using my favorite money converter that would be $301,000,000 in unskilled labor or $573,000,000 in GDP/capita.) Going to $1,000,000 in income also allows one to see what happens at the top when the rate no longer rises.
A very important concept to understand is that not every dollar is taxed at the single percentage rate as you go up the income ladder. Thus, there are two columns in my charts. The “Marginal Tax” is the additional money paid at the top of the bracket for the corresponding rate. The “Total tax” is the actual money paid up to that level. It is the “effective rate”. In simple terms, if you are at the 35% level, you
are not paying 35% on all that you earn. Instead you are paying the amount based on your income being divided up into the number of brackets that exist. For 2010, there are 6 brackets, thus you have six different incomes so to speak.
This is what it looks like as a graph.
When the rate maxed out, I divided the range to $1 million into even parts so that the tax paid for each additional income level is the same. For the 1945/46 and 1965/67 data sets I converted the net income to 2010 dollars. I used the “unskilled labor” and GDP/cap as those are the 2 factors suggested as being the best for knowing what income equivalents are over time. The 1936 data set is converted to 1967 dollar because the numbers just get crazy. For example, a net income of $3840 is $145,000 in unskilled labor and $275,000 in GDP/cap. Though it is only $60,400 via the CPI. Which doesn’t say much for today’s median family income. It also gives us a clue as to just how much money is considered “rich”.
Next posting, I will start presenting the historical data sets. I’m still thinking about the best way to do it as what is important is the comparison among the data sets. Maybe post just the data charts and later the graphs or maybe one data set and it’s graphs at a time.
Daniel,
Excellent post.
My one point: Two people with bachelors degrees in STEM subjects will have no problem making the American dream if they live frugally, stay married, and avoid drugs and the law.
Now two people with bachelors degrees in 16th century English lit on the other hand are in there with the typical HS grad but with all the college debt and missing 4 years of work experience…
And you can make the dream on one income also. I did.
Becoming rich is a whole nother ballgame.
And Mike’s number for the top bracket is 55-65%.
Islam will change
I think that the difficulty with any effort to determine some optimal level of taxation is that the effort itself comes out of an erroneous assumption. That assumption being that the rate of taxation effects the economic performance of a state when in fact it is the economic performace and condition of the state’s economy that determines the necessary level of taxation whether measured in gross receipts or percentage of GDP. Also the distribution of income within a particular state economy will necessarily determine the necessity for applying particualr rates of taxation to each level of income. Choosing to quote significant industrialists such as Mellon, “But when initiative is crippled by legislation or by a tax system which denies him the right to receive a reasonable share of his earnings, then he will no longer exert himself and the country will be deprived of the energy on which its continued greatness depends,” fails to recognize that expertice in finance and industrial management does not equip such experts to understand the underlying determinates of behavior. Why would Mellon be any more knowledgeable of psychological phenomenon than any other intelligent person? Would we quote Freud’s thoughts about the most effective way to finance a major industrial project?
Are the pronouncements of the wealthiest members of any economy assumed not to be self serving? Are their arguments analysed for their objectivity? Participating in the discussion of “effective tax rates” promotes the misunderstanding that people make an effort to produce income based upon the rate of taxation rather than the likelihood of profitability. That’s absurd on its face. “I don’t want to earn an additional $100,000 because I’ll only get to keep 35%, 45%,” or whatever percent is offered. As though the 65% or 55% one gets to keep is insignificant.
The only basis for determining the optimal level of taxation are the needs of the state economy within which income is produced. Those needs are politically determined. The level of income available for taxation is economically determined. The two are otherwise unrelated. Levels of taxation are appropriate in a discussion of budgets and deficits, but the inclusion in such a discussion of motivational aspects related to the production of income is not relevant. The income of a state economy is the basis for the state’s ability to fund its needs but is not the result of those needs nor the level of taxation legislated to meet those needs.
Let’s face the reality of human behavior, those with significant wealth don’t want to share or give up any of that wealth. Taxation is not a request to share the wealth. Sharing wealth is a charitable activity though it is psychologically related to any form of negotiation. It is an effort to accomplish a goal. An employer shares the wealth of business success with the employees in order to maintain a competetive of qualitative edge and thereby continue the success of the business activity. Within a state (political) economy decisions regarding the needs ot the people and the state determine the cost of supporting that economy. Taxation a borrowing are the mechanisms by which those costs are financed. Taxation is the result of economic activity, not a determinant of economic activity.
I took a look at tax sources of Federal revenues, and have a graph to show how the tax burden has shifted over the decades. My numbers are different from Dan’s since I’m looking specifically as the percentage breakdown of income taxes, while I suspect Dan’s numbers are based on Fed revenues from all sources.
Graph
http://2.bp.blogspot.com/-POmygAIKt9w/TWGwb1zEjxI/AAAAAAAABMc/xL7inaUcXOc/s1600/Tax+Rcts+Pctg.jpg
From this post.
http://jazzbumpa.blogspot.com/2011/02/federal-government-tax-reciepts.html
Of particuar interest is the swap od FICA for corp tax.
Cheers!
JzB
Sharply progressive taxes and strong real corporate tax receipts were an historic anomoly. They did conicide with the largest growth of overall wealth which was widely distributed in history. Coincidence isn’t causation. Even if as is evident the end of that tax regime was coincident with the mal distrubution of wealth (income and assets) and the decline of the middle class.
I tend to believe the now ended tax regime contributed to the upside and it’s abandoment is contriuting to the downside but believe larger forces are at work. The first was the end of limitless cheap energy in the form of oil. The second has to do with the nature of human organization itself with the modern business corporation displacing individuals almost totally in the economic sphere and then the political one.
At any rate strongly progressive taxes, capital gains taxes somewhat equal to ordinary income tax rates and strong corporate effective tax collections will never happen again. There is no possible political form which could enact them again.
jazz:
I have seen the chart(s) before and it does show a swing in what taxes support the GF. There is a definite swing of taxes on those who pay the bulk of FICA.
Which explains, or kind of explains, why the Repubs do not wish to keep FICA taxes at 4% for another year. Without the revenues produced from it, they are forced to seek out other funding. Another battle of what programs to cut or what taxes to increase.
STEM majors generally help you until you get into your 40s. Then you are declared too expensive. They say “obsolete”, but they mean too expensive. If you haven’t worked out an exit strategy, you are SOL. Yes, you are ahead of the English majors, but your American dream turns into a nightmare, just as family and child rearing related expenses peak and you should be saving for retirement.
That was Reagan’s big triumph, raising taxes on the majority of Americans to give corporations a big break. We really have to crack down on the government chartered collectives and get them to pay their fair share again.
DOLB:
What is interesting is the rise in the numbers of corporations and individuls and corporations avoiding all Federal Income Tax. Going back to 1969, the Minimum Tax or AMT (part of the Tax Reform Act) was designed to capture the 155 individuals making > $200,000 who had escaped all Federal Income tax in 1967. $200,000 was considered rich then. Then President Nixon put the Minimum Tax into play and also reduced some tax rates.
There were more changes ver the years mostly strengthening it until the 1986 Tax Reform Act under Reagan. Instead of strengthening the AMT, it resulted in 75% of all those who were impacted by it being dropped and revenues colleted dropping by 90%. In effect:
“a millionaire in 1986 paid an alternative minimum tax of $116,395. Three years later, a millionaire paid $54,758. That amounted to a 53 per cent tax cut.”
If Congress would again design the AMT for what it was meant to do, capture corporations who escape all taxes and are on the dole besides individuals who have incomes >$500,000; perhaps, revenues would again increase. Rich is no long $200,000.
well
I guess i agree with Jack. You don’t tax to produce “optimum growth” whatever that is. You tax to pay for the needs of the country, determined politically. That may be big armies, social welfare, or whores for the king.
One of the “correlations” between tax burdens and economic welfare undoubtedly derives from the excess power of “the rich” (who else?) Not only do they determine who (not them) shall pay taxes, but they determine who shall make money.
You are not looking at a “tax problem” in this country. You are looking at a “power problem.” We have let our democracy fall into the hands of the plutocrats, something it was designed not to… or at least designed so that competing plutocrats could not any of them control enough power to establish themselves permanently.
I think we have lost that.
re: Corporate Taxes, keep in mind we now have S-Corps, LLCs, LLPs, MLPs, and other partnerships that tax business entities at the individual level. Don’t know off the top of my head and don’t have time to go searching, but I suspect this is a significant portion of the apparent switch from corporate income tax revenues to personal income tax revenues.
run
i must insist
FICA is not a tax. that it may have been used as a tax is a different issue. but FICA is the worker’s savings account, insured against losses from inflation and market gyrations as well as certain personal misfortune.
if it happened that a FICA rate of 20% was necessary to proved the workers with adequate funding for their retirement, and at the same time the Federal government only needed to tax 1% for it’s needs… defense, “welfare”, basic research… then the “fact” that workers were paying a
“tax” twenty times as high as “the rich” would be entirely irrelevant.
In middle America, an individual needs about $40k and a couple about $70k to lead a comfortable life with all the basics secured and enough left over for savings and basic entertainment and travel. Tack on anothe $10k per child, and adjust for cost of living as appropriate.
Anything beyond this is pure gravy, and we should have no qualms about taxing that money. My wife and I make a bit over this amount (low eighties, plus another 20-25k in untaxed benefits, FICA match, etc). We only paid around $6000 in federal income taxes last year, and could certainly afford to pay much more. Anyone like us who says they are over-taxed is either lying or ignorant. It’s time to pay our bills, folks. Grow up and deal with it.
Don’t lose sight of the peculiarity of “business expenses” that those S Corps, LLCs, etc. take advantage of that are not available to the employed who pay personal taxes. How many individuals do you know that can list a $1,200 vehicle lease as a business expense?
Chad
i am inclined to agree with you, and admire your attitude.
i need to say, however, that as long as my employer is collecting the tax and not bothering me about it i don’t even notice. i get paid what i get paid and the rest is between the boss and the government. But if i were working for myself it would be hard indeed to write that check for 6k, or even six dollars. It’s a matter of psychology not “fairness” . Most people don’t know what the money goes for, and wouldn’t agree with half of it if they did.
I don’t like the game at the end of the year where you get to play tax lawyer and see if you can get some of “your” money back… or have to pay more because of some technical oversight. A simplified tax code and truly automatic payments would ease a good deal of the tax hate in this country.
Except among the rich, of course, who are playing for truly significant stakes, and have nothing better to do with their time and minds than to obsess about every loose nickel.
Thanks Jack that’s just one example of a “tax expenditure” that isn’t categorized as a tax expenditure by think tanks and others who promote the idea of raising revenue by eliminating these. In fact, all income tax deductions from income should be called tax expenditures, if the concept has any legitimacy. Most of the money deducted from taxable income can be found in business receipts, not wages. This is something that almost every non-expert knows but experts don’t seem to grasp. I’m not at all saying that all deductions should be eliminated, I’m saying that people are wrong or dishonest when they define tax expenditures to emphasize such things as employer-provided health care and home mortgage interest but exclude business deductions, including many that are perks.
But the premise of this post bothers me. It seems to be that we need to define “rich” so we know who to tax.
Rich is when you don’t have to worry about working. You don’t work for a boss, and you don’t work for customers. You work, if at all, truly for yourself. And if you want to take a year or ten off, well, you can afford it.
Poor is when you have to worry about getting enough to eat today, or a place to sleep. I would have included … “even if you have a job but can’t count on having it, or another one, tomorrow. But that describes everyone these days: what Sigrid Unset called “situations subject to short notice.”
But if you have to ask, you’ll never get to know. Meanwhile it’s a form of insanity to worry about it, or a lack of mental hygiene to feel “that other guy, the rich guy, should pay taxes and i shouldn’t.” or “that other guy, the lazy bum on welfare, i shouldn’t have to support…”
We are all in this together, and any day it could be us that suddenly “gets lazy” and can’t find a job. Better to structure welfare as “unemployment insurance” and provide some (government) help with finding, or creating, the kind of jobs people won’t prefer unemployment to.
And we all need to pay taxes for this. Rich or poor. It is only sane that the tax rates should be progressive, but they don’t need to be punitive, or based on the idea that someone else should pay.
Not, of course, that we will ever see such an exalted level of sanity.
of course if we ever got truly sane we would be able to work “enough” to take care of our money needs, spending less than we “earn” so that at some point we can live off our savings and not have to worry about working (see definition of “rich” given above.)
this is doable, but not as long as we live in a world where the masters of the universe drive us, either as frank wage slaves, or simply as stupid “consumers” to always always having to work for MORE… more for them, mostly, but we get a few plastic toys out of the bargain. while our lives and out childrens lives become not worth living.
I’ve been at a place with no internet access after posting so…
I quote Mellon only to put today’s rhetoric in historical perspective as: been there, done that. Thus the Atlas Shrugged quip.
I agree totally, taxation should be based on the nations needs. That brings up the question of what should be the nations needs/concerns. That is not this posting. Though for me as past noted we have shifted from a focus on the efficiency of people and thus reducing their risk of living to the efficiency of money.
I think this focus does come from a gradual shift from a model of social democracy as the structure for organizing people and allowing their efficient living to the corporate model of organization. Couldn’t be helped with the election of people who believe government should run and act like a business.
I don’t think Mike has suggested we specifically structure the tax code to promote growth. However, taxation is a tool of social policy. Best we used the historical data to guide the use of the tool of taxation.
The $200,000 in 1967 for the AMT is $1,330,000 unskilled labor and $2,240,000 gdp/cap. Thus another historical mark as to what is considered rich.
Yes, my numbers regarding personal vs corp income tax % is based on total revenue.
Thank you Buff, much appreciated.
Kaleburg,
I work in a company that is desperately trying to lay off its senior workers, some in their 70s and almost all eligible to retire, by handing over nice encentive packages.
Nobody who’s competant in their 40s or 50s has anything to worry about…plenty of work to go around.
Islam will change
coberly,
A small nit. FICA is not a worker’s savings account. It’s worker’s insurance. A saving’s account I own, these worker’s don’t own anything but the promise that the insurance will pay if they live long enough. Die early and your heirs get nothing. You don’t help your argument by saying this.
I must insist also. FICA is a tax….
Islam will change
“However, taxation is a tool of social policy. Best we used the historical data to guide the use of the tool of taxation.”
That is precisely the wrong view. It is the idea that is promoted by the tax vigilantes in order to justify their claims that taxes ought to be manipulated to encourage economic growth. It can’t be done. As Buffet has clearly stated, the astute business person invests based upon the profit potential. Then he pays his taxes. That many business people would have you believe that low taxes preceed their decision to invest is a canard aimed at getting their cake, keeping that cake and eating it as well. Those people want it all, not just their fair share.
Of course that doesn’t stop some politicos from offering to give up the farm to busisnesses that set up in their localities. In those cases jobs are not being created, but instead such jobs are only being transported based upon a tax freedom ransom. Texas is a good example. Low taxes, low paying jobs and lousy educational services. Welcome to their nightmare, the greedy business dreamscape.
“nobody who’s competent”
so what do we do with the “incompetent”? soylent green?
you, buff, may work for an enlightened company. i have heard other stories from other people.
buff
die early and your dependents collect Social Security benefits until they are able to support themselves.
your savings account depends on a promise that the bank will give you your money back. or the promise that your choice of stocks will be winners… wait.. you’re right. there is no promise there. well, i guess no promise is better than a government promise.
meanwhile for seventy five years workers have been putting part of their savings into Social Security and that government promise has been giving them their money back with interest when they needed it most.
i don’t help my argument by arguing with people whose minds work by repeating words to themselves.
you see, it is workers insurance… and what is insured? why, workers’ savings.
btw
suppose instead of dying and not leaving your heirs anything, you live … without social security… and exhaust your “savings” and your heirs have to support you.
or consider this: because I “won” the employment and stockmarket sweepstakes I can put my Social Security check in the bank (don’t worry folks, i paid for it myself) and “leave something for my heirs”. you’d be surprised how much it adds up.
meanwhile all those people who bitterly complain about what they could do with the SS money if they didn’t have to pay the “tax,” leave it to their heirs, have a better retirement, would never forego a case of expensive pisswater in order to fund that better retirement or leave it to their heirs.
you see, everything they spend is “living expenses” and everything they “invest” is going to make them rich. only Social Security takes money away from all that. they tell themselves stories about “getting nothing.”
what they get, got, was the security to go out and make money without having to worry about “what if”. and they also got the money they could make in an economy where other people could go out and make and spend money without worrying about “what if.” but like a spoiled child they will spend all year sulking about the bigger piece of burfday cake their sister got when it was Their birthday.
but there is no reason they can’t give themselves for why SS is a bad deal that they won’t accept as final proof that it is. never mind all the reasons they can’t think about that it might be the best deal workers ever had.
Daniel FWIW I too was curious about what old tax tables might say and looked at where the 50 percent marginal income tax rate kicked-in when we had one, because this might contain a hint regarding what we once considered to be rich or at least very high taxable income. Under Ike, that bracket began at $270K in 1955 and $250K in 1960 (all numbers are for married/jointly; inflation-adjusted using the BLS calculator; rounded slightly). In 1966 under LBJ it was $310K. It fell to $225K in 1973 and fell considerably further during the big inflation years that followed. Under Reagan, it was $200K in 1982 when 50 percent became the top-most rate, and $360K in 1986 just before the top rate was cut by the Tax Reform Act of 1986.
Imho these numbers are worth a mental note when wondering if someone’s tax hike proposal seeks to “soak” the “rich.” Between 1955 and 1986, excepting the post-Nixon inflation-induced bracket creep era, we apparently agreed in our tax code that income tax filers with AGI roughly in the neighborhood of 1/4 or 1/3 of a million dollars per year were sufficiently “rich” to pay marginal rates of at least one-half without “soaking” them. Today, of course, the top bracket of 35 percent kicks in at $380K, which is higher than any of the above numbers associated with the former 50 percent marginal tax bracket. Including Reagan’s top bracket. So I’m not worried at this point about hypothetical proposals for soaking the rich–I’m more worried about insufficient income taxes on high-end incomes for what we need, to include especially what we need for our economy.
i should probably say that if i was not a crabby old man and if buff had not been annoying me lately i could have just said, buff, you are right, SS is an insurance program AND (click, click) a breath mint… oh… a savings program. FICA is also a tax that is not a tax.
But Buff’s head would explode because for him a man’s word is his word. only one meaning per customer, and every real thing must fit entirely within its word.
But here is a clue for the rest of you: Social Security is what it IS, what it DOES, not what we call it
so we can come up with “talking points” like… if i die my heirs will get nothing…” because you see, there are no trade offs in this world. we must have a savings program that is NOT insured so that our heirs will have something to remember us by… instead of having a savings program that IS insured so that our heirs will have something to live on in case we die sooner than we expect. And of course a savings program that is also a tax means that our heirs won’t have to support us in our old age… or send us out into the street… because we “forgot” to save enough.
oh, and the other reason it’s a tax is because most people… or maybe just a lot of them… are too stupid to insure their savings by something as clever as pay as you go managed by the government… unless you force them.
for the same reason you force them to drive at the speed limit even though they are better drivers than the rest of us.
oh, god, my Pfreedom! my pffreeedom!… says the man who gave up his freedom for a secure job following orders and never having to make a moral decision again.
oh, god
pjr
and the effective tax rate on “taxable income” for the rich is 17 to 25%.
and the tax rate needed to pay down the pre 2008 deficit is about 3% above current rates… truly soaking the rich.
of course i’d like to see a 10% Patriotic Deficit Emergency Surtax on income above the SS cap, while the SS tax is raised about 1% over the next ten or twenty years.
But you see, we can no longer have a tax increase because, well, the rich pay more taxes than the poor, and the poor middle “aren’t rich.”
Divorced one like Bush – “At this moment, I want to mention corporate taxes. There are lessons to be learned from it’s history. I think it is a factor in understand more completely the issue Mike is focusing on: taxation and GDP growth. Wrap your minds around the fact that from 1936 to 1943 there were 6 years that corporate tax collections were greater than personal income tax collections.”
U.S. federal taxation of its citizens changed dramatically from an approach of taxing primarily the rich to one of taxing the masses during that period. The number of U.S. taxpayers required to pay federal taxes jumped from roughly 4 million in 1939 to 43 million in 1945 due to the various changes in federal tax law beginning in 1940s according to one source. Eventually, during the 1940s, if an individual earned over $500.00 federal taxes were due at a 23% tax rate.
In 1941 the number of federal taxable income tax returns increased to 15,000,000; in 1942 to 16,000,000, and in 1943 the number was expected to be 35,000,000 according to Congressional testimony in 1943.
Divorced one like Bush – “Not only did we have the tax tables of 1936, that table eventually had a 10% surcharge added to pay for the war. Yes, another reason to consider the generation that fought the 1st and 2nd world wars the greatest generation. There was a 7% surcharge for the Vietnam war, though that number became less as time passed. Still, we knew that if we wanted to do exceptional things, we had to tax ourselves exceptionally. Also, the early taxation made no distinction for single or married, never mind filing joint or separate. Everyone paid the same rate.”
There was never a 10% federal income tax surcharge added to the federal tax laws of 1936 to my knowledge. A number of tax law changes occurred from 1935 to 1946, but I am unaware of a 10% federal income tax surcharge at any time during that period. The Victory Tax was not 10%.
There was never a 7% federal income tax surcharge passed for the Vietnam war. Only two federal income tax surcharges were ever established for the Vietnam War, one for 10% in 1968 which was prorated and another in 1969 for 5%. Low-income taxpayers were entirely exempt from the two Vietnam era income tax surcharges; low-income at that time was considered to be the equivalent of $28,000 or less in 2005 dollars.
You misunderstand me. I know business thinks profit first, taxes later. However, that does not mean that taxation is not a social tool of government.
As I understand some of the issue, taxes too low can make for a lazy investor, taxes too high is suggest as being a brick wall. I think this issue of too high is tied to whether the taxor is taking some for themself as in dictator, king, queen etc or is an entity that feeds it back, all of it into the economy. That would bring up the sub issue of is it being feed back into the economy in a manor that adds to the common’s wealth such that the individual becomes more wealthy at most, or at least does not fall behind. Or, is the entity feeding it back in to the economy in not such a manor, say funding bomb building while promoting bomb exploding activity.
Hi MG
At the bottom of the tax table I used 1969 is:
Note: Rates here exclude the effect of 10-percent surtax. Last law to change rates was the Tax Reform Act of 1969.
1968 has:
Note: Rates given here exclude the effect of a 7.5 percent surtax. Last law to change rates was the Tax Reform Act of 1964.
1970 has:
Note: Rates given here exclude the effect of a 2.5 percent surtax. Last law to change rates was the Tax Reform Act of 1969.
At the bottom of the 1940 table which has the same top rate and is essentially the same as the 1936 table thus my comment is:
Note: Tax rates include normal tax of 4 percent plus applicable surtax. Defense tax of 10 percent of normal tax and surtax (limited to 10 percent of excess of net income over sum of normal tax and surtax). Last law to change rates was the Revenue Act of 1940.
Productive workers, if their skills are needed are golden.
Your company has too many unproductive workers. And your customer keeps paying for scrap and rework. Supported by Sen Cornyn.
I saw somewhere this AM where USAF cannot let F-22 stay grounded for blowing CO (carbon monoxide) through the breathing oxygen, has not figured out what to fix, and will return the airplane to flight status, anyway.
I think there are too many senior F-22 pilots………………………
Trying to get them to retire?
I am so rich I am nearly giddy. But I meditate to keep that problem down.
I have everything I need.
There is nothing (that money can buy) that I want.
See Thoreau or Zen.
Coberly it also has been made clear to us that increasing taxes on the “rich” wouldn’t generate much revenue. In 1980 the top 1 percent of income tax filers had an average of $245K, inflation-adjusted, after paying their federal income taxes. In 2007 before the recession, this number was $1.1M. Together these income tax filers annually earn $1.2 trillion more after-tax dollars than in 1980. If the effective tax rate on this group returned to the 1980 level, they’d lose about one-third of this increase (about $400B per year). But apparently that’s chump-change not worth our attention.
ilsm
actually i failed to notice the ill-logic of Buff’s claim… his company is desperate to lay off senior workers. so nobody in their 40’s – 50’s has anything to worry about?
i guess the company will not find a way to lay off their senior workers…. some union contract i guess.
or government anti-discrimination “regulation”
i dunno. i think if i was seventy i’d be ready to quit. i know i wouldn’t be worth a damn at what i used to be good at. but hey, aren’t we going to raise the retirement age?
and those poor 40 – 50 somethings will just have to wait until they can move into those senile… er, senior… positions.
and of course, if Buff can do it, anyone can.
Becker
there is a little inconsistency in my position which i will have to point out. i don’t think that tax policy is a good way to manage the economy. and i certainly don’t think the founders intended taxes to be the way to preserve “equality.” on the other hand, excess wealth is probably bad for an economy and the country… leads to concentration of power and distortion of production and also to gambling among the rich who have nothing productive to “invest” in.
nevertheless i think all those good things you think the gov should be doing can be done without massaging the tax code. just do them. and pay for them with taxes.
but if they talk fast it can sound so reasonable.
The tax tables used are from the Tax Foundation and The Tax Policy Institute. For this series of postings, I am going to stay with their notes as the only real issue here was to note that historically we add to what we were already paying to pay for something “extraordinary”.
dan’l
i guess i misunderstood… i thought you said the founders intended taxes to be used to assure equality of power. i don’t think they intended any such thing.
no doubt taxes are used and can be used to influence the economy. my theory is that’s a bad way to go about it. tax where the money is and the economy will adjust. if there are power or poverty issues, address them without games in the tax code, and then pay for them with straight, simple taxes. the powerful will always win the tax code game.
DB
I understand your point, but I want to caution all those who agree that taxation in our country is generally oriented toward reducing the tax liabilities of the very wealthy and their business sources of that wealth at the expense of the rest of the population, which means the salaried middle classes. By accepting any part of the argument that taxes can be utilized to engineer either business or social outcomes we accept the potential legitimacy of the argument that higher taxes some how retard economic growth. Taxation serves one purpose and that is to raise revenue in order to pay for the expense of governing a large and complex political society. That’s it!! If those expenses are too great then socio-political arguments have to be made which address that issue. Otherwise raise taxes to cover those expenses that are required of a first class, modern and technologically advanced country. The extent of tax obligation should be coordinated with the extent of benefits one has gained by being a participant in this country.
jack
another way to put this is that Econ 101 production possibilities horizon graph … if that’s what it’s called. it’s been a long time. the point is that a society is always faced with a trade off between current consumption and investing for future growth. the economists and politicians always talk as if the trade off is illegitimate. we must always have all the growth we possibly can. never mind eating. never mind taking the day off. every dime, every hour, must be invested.
of course that’s not what they do in their personal life, it’s just their attitude toward taxes and wages.
if the country reaches a point where a certain amount of expenditure is necessary to maintain a certain decent standard of living, then “growth” will just have to take its turn.
and no, we are not in, and have not been in for a long time, a situation where “growth” is necessary to reach that certain decent standard of living for all.
but i wouldn’t make too much of an issue of “taxes should be coordinated with the extent of the benefits one has gained…” just tax where the money is and the coordination will take care of itself. so will the economy.