> In 2014, people with adjusted gross income, or AGI, above $250,000 paid just over half (51.6%) of all individual income taxes, though they accounted for only 2.7% of all returns filed, according to our analysis of preliminary IRS data. Their average tax rate (total taxes paid divided by cumulative AGI) was 25.7%. By contrast, people with incomes of less than $50,000 accounted for 62.3% of all individual returns filed, but they paid just 5.7% of total taxes. Their average tax rate was 4.3%.
In the state of California, "New figures from the Franchise Tax Board show that the wealthiest 1% of Californians paid 50.6% of the state income tax in 2012 — up from 41.1% in 2011. It means that of nearly 15 million tax returns, about 150,000 generated more than half the revenue." (http://www.latimes.com/local/la-me-cap-taxes-20140505-column...)
It's not very healthy to collect taxes this way. As the LA Times article indicated, California's tax revenue fluctuates based on the incomes of a pretty small number of people.
When a small number of people provide most of the tax revenue, yet the political discourse constantly accuses them of not paying a fair share, it's not hard to see why they feel persecuted and try to hide their money.
It's also hard to say that they aren't paying their "fair share" when they provide more than half of the government's tax revenue. Anyone who wants them to pay more ought to provide some kind of objective way to calculate what someone's "fair share" of tax is, and that's probably impossible.
>Currently, the richest 1% hold about 38% of all privately held wealth in the United States. while the bottom 90% held 73% of all debt. According to The New York Times, the "richest 1 percent in the United States now own more wealth than the bottom 90 percent".
Your stats don't sound so crazy when you put it in context.
Please feel free to peruse the economic history of states where the rich eventually dodged taxes and left the crushing burden to the middle and poor: ancient Rome, modern Greece, etc.
Your stats about wealth inequality are fine, but there is another stat that needs to be considered alongside them: in the US, the vast majority of wealth was not inherited. In fact, a smaller percentage of wealthy individuals in the US inherited their wealth than in most other countries.
However, this is all moot, because taxation is based on income, not wealth. The only way the US government taxes wealth in and of itself is the estate tax, which affects a pretty small percentage of estates.
It would be more relevant to focus on income inequality, but even then, that's missing my point. It's true that wealth and income are very unequal in the US, but it's also true that the people who benefit from that inequality pay more than half of the taxes, and many people pay none at all. How much more should the rich pay before they reach their "fair share?"
The rich currently pay effective income taxes at a lower rate than the middle class, thanks to their close association with corporations and much of their gains being stock related. Taxes on the rich are just recovering from all-time lows in the Bush years. So stop acting as if the rich are being bled dry or pushed to a limit. They avoid taxes using offshore strategies because they can, not because they're in dire straights. And they are succeeding in paying lower rates than anyone else. Meanwhile, one of the major parties of the country wants to cut estate and upper end income taxes even more, and raise them on the middle and poor.
The fight isn't happening at the rich's doorsteps, it's happening at the doorsteps of the middle and poor, pushed there by the rich.
Tax avoidance is mostly happening because tax rates are seen as too high by the rich. Paying 40% tax on $50,000 is different to paying 40% tax on $10m. Past a certain point, setting up an avoidance mechanic (if one exists for the investment you want to make) will be cheaper than actually paying the default tax rate. Avoidance can never be stopped, because it's mostly structuring transactions in legally allowed but clever ways and you can't stop that (or you would block normal, legal transactions as well).
Say I have $10m I want to invest in an international company. If I do it in the most obvious way, by capitalising an entity, I might get a 30% return on my money after 3 years after paying all taxes. Alternatively, I can structure it in a different way, and make 50% in 3 years, because I end up paying less tax. The difference is an extra $2m on $10m. If the amount to set up a structure/attorney fees/possibly litigation fees < "normal" tax to pay -> avoid.
The only real solution is to lower rates across the board by getting rid of most deductions. If you remove the incentive to avoid, it'll be less worthwhile to avoid, and most people will stop doing it. How much people would put in an effort to avoid taxes, if the actual tax rate was, say 10%?
> Paying 40% tax on $50,000 is different to paying 40% tax on $10m.
You're right. It's way different to charge 40% on $50k, because the person making 50k probably can't make ends meet if you charge them 40% tax. The person making $10MM has no such trouble.
I'm not saying it's right, I'm just saying how it is and that it's a problem that is very hard to fix. For wealthy people, tax is just another expense to push as close to zero as possible.
I completely agree that it's a hard problem. I don't think there's a fix that involves lowering the tax burden on the wealthy, though. You can dump more taxes on the middle class and effectively reduce the level of avoidance but I don't think that's a net gain for society. I think it would actually be a huge loss.
> The solution is ruthless enforcement of the tax code, with extreme punitive fines for evasion.
Evasion has always been illegal, avoidance is structuring a transaction in a way so that it ends up being taxed at a lower rate, but in a legal way. Ruthless enforcement is already happening today in most western european countries.
Well.. countries are allowed to set their own tax laws. That’s part of what makes a country. Fiscal sovereignty right there. Ireland (obviously) purposely created their tax framework so it would allow for this kind of behaviour. The world is battling for the tax dollars of wealthy people and their corporations. The EU ruling is just an initial opinion of the EU commission. It’ll have to go through the ECJ first.
Countries are starving for tax income and have very clear conflicts of interests: they want to 1) tax their normal residents as much as possible, but at the same time 2) hand out low tax “freebies” to non residents (or HNWIs) so they will book some of their taxable profits in their jurisdictions. This needs to stop (globally) before you can effectively combat avoidance. But I doubt it’s ever going to happen.
> Oh please. It took 6 years for the EU to penalize Ireland for the double irish/dutch sandwich avoidance mechanism.
That's because it's not a clear-cut legal issue. It's pretty much the EU versus everyone else on this one. Even the US government is unhappy about the EU ruling, even though the US government has gone after Apple for its tax practices fairly recently.
You have no idea what that person's situation is from their income. I know retired people with a lot of money who pay hardly any income taxes because they don't have much income. I also know people who could make a million this year and not be out of debt.
If you're earning 10MM/year and unable to make ends meet, you're terrible with money and it's your fault. Maybe you can construct a far-fetched scenario in which this could reasonably be the case, but in the real world virtually anyone making 10MM/year is extremely wealthy or extremely incompetent.
If you're making 30k/year, you are just barely making enough to support a family on your income. Yes it's possible to be wealthy and low income, but it's uncommon and generally indicative of retirement or something similar.
>If you're earning 10MM/year and unable to make ends meet, you're terrible with money and it's your fault.
Maybe, but not necessarily. What if I spent twenty years putting myself in the position to make $10m in one year?
>If you're making 30k/year, you are just barely making enough to support a family on your income. Yes it's possible to be wealthy and low income, but it's uncommon and generally indicative of retirement or something similar.
Well, yeah, but so what? My point was you're making a lot of assumptions based on income alone.
If you spend 20 years setting yourself to make $10MM one year and you still can't make ends meet then you are clearly incompetent.
I don't understand what your point is with this whole argument. Yes, there are always exceptions. They aren't very interesting but the very nature of being exceptions, especially since tax laws are written for the general case.
The number of multi millionaires in your exceptional case is also much smaller than you probably think. It's vanishingly difficult to earn no money when you have millions in assets.
>If you spend 20 years setting yourself to make $10MM one year and you still can't make ends meet then you are clearly incompetent.
I don't see how you could make a statement like that. It costs money to live, and it costs money to keep a business venture going. After 20 years you may own $20m. It doesn't necessarily mean you're incompetent. It may just mean things didn't go the way you planned.
>I don't understand what your point is with this whole argument. Yes, there are always exceptions. They aren't very interesting but the very nature of being exceptions, especially since tax laws are written for the general case.
My point is you don't know enough about someone's situation to make a blanket "they can afford it" or "they can't afford it" statement, and that statement underpins the entire argument for forcing people with higher incomes to pay more taxes.
>The number of multi millionaires in your exceptional case is also much smaller than you probably think.
Or it's much larger than you probably think. Nobody knows. Why are you assuming you know?
> It's vanishingly difficult to earn no money when you have millions in assets.
Actually, with current interest rates it's pretty easy. I know people with millions in assets who put their money in safe investments, because there's no reason to take risks when you have millions and you're in your 70s. Right now the interest on safe investments is a rounding error.
> I don't see how you could make a statement like that. It costs money to live, and it costs money to keep a business venture going. After 20 years you may own $20m. It doesn't necessarily mean you're incompetent. It may just mean things didn't go the way you planned.
If you have $10 million in income and cannot make ends meet, something is wrong with you. I understand that you could also have debt. That doesn't mean you aren't "making ends meet". I have more debt than income. I'm making ends meet just fine.
> My point is you don't know enough about someone's situation to make a blanket "they can afford it" or "they can't afford it" statement, and that statement underpins the entire argument for forcing people with higher incomes to pay more taxes.
Income is extremely correlated with how much of anything one can afford, including taxes.
What is your alternative anyway? We'll just stop taxing people entirely because we can't really know what they can afford? Or are you just being pointlessly argumentative?
> Or it's much larger than you probably think. Nobody knows. Why are you assuming you know?
Because I did the math, as could you.
> Actually, with current interest rates it's pretty easy. I know people with millions in assets who put their money in safe investments, because there's no reason to take risks when you have millions and you're in your 70s. Right now the interest on safe investments is a rounding error.
Drop your millions into T Bills for 5 years and you'll earn 1.3% on the safest investment you'll get. 1.3 is a rounding error? Ok. On a million dollars it's also 13k. So if you park 5 million in this absurdly low interest investment you'll still make 65k/year.
So no, it's not easy to make no money if you have millions in assets. A few million in safe investments yields more income yearly than the average American family makes.
>If you have $10 million in income and cannot make ends meet, something is wrong with you. I understand that you could also have debt. That doesn't mean you aren't "making ends meet". I have more debt than income. I'm making ends meet just fine.
Again, it all depends on the details. Could you make ends meet with $10m when your $20m debt comes due in the same year?
>What is your alternative anyway? We'll just stop taxing people entirely because we can't really know what they can afford?
The alternative is, one, we keep the top rate reasonable. Nobody should have to pay 70% or 90% or whatever on his income, no matter how large. And everybody should pay income taxes, even if it's just a token amount.
And two, we should get more of the national income from consumption taxes. If you can run out and buy a bunch of stuff you can then I know you can afford it. I'd have a national system like California's, where things like food and clothing are exempt.
>Or are you just being pointlessly argumentative?
Don't be an ass. Seriously.
>Because I did the math, as could you.
When I "no money" I don't actually mean zero money, though I'm sure there are people who keep large amounts of money in their checking accounts. I mean no money compared to assets. What is a few tens of thousands for someone who has millions in the bank?
>Drop your millions into T Bills for 5 years and you'll earn 1.3% on the safest investment you'll get. 1.3 is a rounding error? Ok. On a million dollars it's also 13k. So if you park 5 million in this absurdly low interest investment you'll still make 65k/year.
You realize for someone who has five million dollars in the bank, particularly someone who's only going to be using it for a handful of years, $65k is a rounding error? And that the average tax rate for someone in that bracket is around 13%, so that guy with five million in the bank is going to pay somewhere in the neighborhood of $8500 in taxes.
> Again, it all depends on the details. Could you make ends meet with $10m when your $20m debt comes due in the same year?
Can you describe a realistic situation in which you receive a personal loan for $20 million that comes due at once that you cannot pay for by liquidating other assets? This isn't a real scenario. No one will give you this kind of personal loan without collateral or proof of significant unencumbered assets. And at minimum, you'd be doing this through a corporation, or again, you are incompetent.
> The alternative is, one, we keep the top rate reasonable. Nobody should have to pay 70% or 90% or whatever on his income, no matter how large. And everybody should pay income taxes, even if it's just a token amount.
No one in this comment thread said anything about raising taxes to 70 or 90 percent for anyone. You're taking against a nonexistent point.
Nor is this "alternative" an alternative. In no way does this address the fact that a specific income does not guarantee an ability to pay a specific tax rate.
> And two, we should get more of the national income from consumption taxes. If you can run out and buy a bunch of stuff you can then I know you can afford it. I'd have a national system like California's, where things like food and clothing are exempt.
Consumption taxes are effectively regressive. Exempting clothing and food is a decent idea but it's still regressive and I'm not sure foie gras and mink coats should be tax free.
> Don't be an ass. Seriously.
You're arguing against points I never made and you never even stated. You're making appeals to consider imaginary millionaires who can't pay basic taxes. It honestly feels like you're being intentionally argumentative.
> When I "no money" I don't actually mean zero money, though I'm sure there are people who keep large amounts of money in their checking accounts. I mean no money compared to assets. What is a few tens of thousands for someone who has millions in the bank?
The money you have in the bank isn't relevant to your taxes except to the extent that it produces income for you. If you are insanely wealthy and have almost no income, you'll have no trouble paying your taxes.
Are you imagining that I at some point proposed a tax on wealth?
> Can you describe a realistic situation in which you receive a personal loan for $20 million that comes due at once that you cannot pay for by liquidating other assets? This isn't a real scenario. No one will give you this kind of personal loan without collateral or proof of significant unencumbered assets. And at minimum, you'd be doing this through a corporation, or again, you are incompetent.
The most obvious situation is probably where you've invested a certain amount of money in a highly illiquid asset, that can someday (i.e. 10-20 years from now) be liquidated for a significant capital gain. This could, for example, be a business or a plot of valuable land.
How does that work? The bank gives you a noncollateralized loan so that you can buy a $20 million property and then they suddenly call the loan? They gave you the loan without proof of ability o pay? I have trouble believing that this is very plausible. It's so risky to both parties that I can't see why the bank would issue the loan.
I can't deny that it's technically possible. I just think it's extremely far-fetched.
Not really. Even if a loan is collateralized by an asset, that doesn’t mean it is easy to liquidate said asset at full value.
For example, let’s say I buy a Monet painting for X million and a bank is willing to give me a collateralised loan of up to 75% of the asset value. If a bank decides to sell that asset tomorrow (i.e. at a suboptimal time) they might not even get 75% of the value back.
Debt is a lever in business and some people make it big by leveraging big.
Sure. But the bank isn't going to give random Joe a loan to buy a Monet. That's why all this is far-fetched. There are scenarios that could result in 20MM loans being suddenly called. People with little assets generally don't get those loans though.
It's doubly far-fetched to talk about loans to individuals for $20MM. If you're applying for a $20MM loan, you should have an accountant and your accountant should have told you to put this kind of thing in a corporation. You'll still lose a lot but it shouldn't bankrupt you personally.
Well, it depends on how wealthy you are and the jurisdiction you live in. Loans are not taxable income and if you would have to pay some sort of withholding tax on a dividend (if you would want to borrow against your illiquid shares for example), then it might make sense to take out a personal loan. A bank might also be more keen to give you a loan personally.
But yes, obviously not that common. Random Joe won't be getting these. Random Joe doesn't have $20m in assets either, though.
> If you remove the incentive to avoid, it'll be less worthwhile to avoid
Taxes are needed to pay for hospitals, teachers, firefighters... what happens if the amount that the 1% think is fine doesn't cover for that expenses? They have so much money that they can afford private version of that services. But what is in that model for the rest of citizens?
This is a problem between short term benefit for a few against long term losses for everyone. It is not possible to have a modern society with low rates of death by sickness and low levels of violence and crime if we can't afford to have in place none less improve all the current safeguards.
I don't know the answer to that.. maybe we need to be more efficient with the resources we use/allocate, or maybe we need to try and figure out how to make due with the tax income we have? Governments all over the world are constantly overspending. That's the nature of the beast. Give them X and they will spend X + 10. I wouldn't actually be surprised that we can make due with current (or even) lower overall tax income if we decide to allocate it properly.
Wealthy people can move relatively easily if they want to. If someone is worth $50m, he's really getting very little value from the system. Heavy shoulders should bear a heavier burden, I agree, but how far should that go? Maybe the maximum amount of tax should somehow be capped. Past a certain point, some people just get fed up with paying insane amounts of taxes. Proportionally (income wise) middle and lower income people are paying more in taxes then, but they are also getting more back in comparison to the guy who is worth $25-50m.
The rich benefit from a society where he can conduct profitable business. I think he benefits more than he cares to admit, because a more heavily taxed middle class is going to spend less, and that is going to affect his bottom line, one way or another.
You say they "get fed up with paying insane amount of taxes". All they have to do to stop paying so much in taxes is to stop accruing an insane amount or wealth.
The truth is more likely that their wealth has made them selfish and insensitive. As Leona Helmsley famously said "Only the little people pay taxes".
It might be interesting to know what percentage of thier offspring the wealthy are sending to fight and die in wars compared to everyone else.
What is missing from this view is that wealth is good. If you run a company (that isn't a monopoly) you will quickly realize the obvious:
The only way to create wealth is to give most of it (>50%, at least) away. You have to provide more value than the price of what you're providing.
It is a very good thing, for society, for you and me, that that wealth is created. If the rich ever "stop accruing an insane amount of wealth", that would be very bad. We don't want that. We want that wealth to be created.
And then there's the obvious fix: just have the government do it all. The problem with that is that it takes away the wealth creation motive and replaces it with raw power. The point of business, at that point, becomes advancing it's management position in the government, not to serve anyone. I very much prefer a lot of highly capable people working to provide more goods for me cheaper & better to a lot of highly capable people working to provide a tighter and more controlling government. So should you.
Look at a red state like South Carolina as an example.
Basic services like fire protection are membership based, folks who live in unincorporated territory have to BYO water, sewer, security, and poor folk are really poor.
The rich currently pay effective income taxes at a lower rate than the middle class
That's not true at all.[1]
For those making $50K-$100K, 87% have less than a 15% effective tax rate. For those making $200K or more, Only 14% pay less than a 15% tax rate with 84% paying more than 15%.
Here is another set of data.[2] Effective tax rates are strongly associated with higher incomes.
> So stop acting as if the rich are being bled dry or pushed to a limit.
I never said they were being bled dry. I said they already pay most of the taxes, and it seems unjustifiable to ask them for even more, while at the same time demonizing them for not paying their "fair share" -- as if paying more than half of the taxes isn't already a major contribution. Their ability to pay is not relevant to my argument.
I would have to disagree almost entirely - their ability to pay is why they are being asked to. This much is basic economics, I should have thought. Someone who has no more to give cannot, and there is little point asking.
Most of the wealth == most of the taxes. This is justified in a basic arithmetical sense.
> Most of the wealth == most of the taxes. This is justified in a basic arithmetical sense.
No, most of the income == most of the taxes, and that is the situation we are already in. My point is that it's hard to justify asking for even more money from the group of people who already pay more than half of the taxes.
You're quite right, my apologies, I saw a thing and wrote a response to something you hadn't said.
I suppose I mean to say that this is the thing really - income tax on its own is not working, evidently, given that it is so easily avoided. Surely the idea is that everyone should want to commit as much as they can to the furtherment of their community, nation and species. The very fact that things like this, game-theoretic winner-take-all, tax "avoidance" (because it's legal, therefore morally fine), exist is enough to make me wonder if there is any point at all to my existence, let alone the existence of the poor sods who aren't fortunate to make even as much as I.
But then I strongly suspect I'm a lefty pinko communist and shouldn't be trusted in a proper discussion about actual fiscal policy.
There are many people that don't view the expansion of a government's budget as the 'furtherment of their community'. When you hold the view that governments are full of corruption and incompetence, then the moral thing to do is deprive it of as much income as possible.
Taxes on the wealthy are at historic lows and wealth inequality at historic highs at a time when we have many important but underfunded programs that would benefit all of us. What's the argument against it? That it isn't "fair"? That rich people will stop trying to earn more money? I don't find that to be credible.
If you depend on a small number of people for the majority of tax revenue, you will end up with unstable revenue. Look what happened to California's tax revenue during the 2008 recession. It dropped because the small number of rich people who pay more than half of the taxes got hit pretty hard by the recession.
Besides, do we really want to live in a society where only a small group of people has a financial stake in the funding of the government? Voters would probably be a bit more informed if they had some skin in the game. We really don't want to live in a society where the majority of voters will always approve spending increases because they know their taxes won't increase, and the cost of the increase will be borne by the top few percent. That will get us a runaway train of government spending.
Since the top 1% continue to accumulate a vast percent of the wealth, they are the best ones to tax to support the rest. It is unfortunately that things are so unbalanced that the poor don't have much to tax. We could choose to do nothing about it and let the rich keep more of the money. Eventually it will result in more of the poor and average people falling behind. Where will Walmart gets their billions when none of their workers and customers have money to spend? At the worst the whole economy will stagnate or people will revolt. The super rich could afford to take and "us vs them" mentality and bunker down somewhere safe.
The top three US non discretionary spending categories are Social Security, Medicare, and Defense. I whole heartedly agree it's time to gut US defense spending, considering we spend more than the next 10 countries combined.
Cutting spending would make the us look weak. Simply not increasing it drastically is good too. Over a long period of time inflation will take over and the spending amount as a percentage of gdp will go down.
Fair is in the eye of the beholder. But the only reason the rich pay so much in nominal taxes is because their incomes (which are directly and strongly correlated with their wealth) are so ridiculously high.
Keep in mind that just because Bob is paying a million dollars in taxes and Julia is paying ten dollars in taxes does not mean the system is unfair towards Bob. Especially if Bob should actually be paying three million dollars in taxes, but has used creative accounting practices and tax avoidance schemes to reduce his tax burden.
> Especially if Bob should actually be paying three million dollars in taxes, but has used creative accounting practices and tax avoidance schemes to reduce his tax burden.
If the accounting schemes and tax avoidance schemes are legal according to the tax code, then they are what determine what he should pay.
The amount someone should pay is the amount he or she is legally required to pay. The tax laws are the only standard by which the amount of taxes someone should pay can be determined.
>Keep in mind that just because Bob is paying a million dollars in taxes and Julia is paying ten dollars in taxes does not mean the system is unfair towards Bob.
Yes it does. The reason Bob pays more has nothing to do with fairness. Bob has money the government can take without his permission and Julia doesn't. That's the long and the short of it.
> How much more should the rich pay before they reach their "fair share?"
Take their age and approximate hours worked, multiply hours worked by 2x median hourly wage (cause we're nice), take away and redistribute the rest of their money.
Very few people would consider taxation based on "wealth" to be a fair system. Most people accept income taxes fair enough, but a taxation system based on wealth feels like (and is) simple confiscation.
You hold $100. I hold $1. We live the same life, live the same services, make the same income, and you pay 100x the taxes, if you base it on wealth. Does this really feel fair?
Even better, if you subtract out debt (as you suggest), this gives me an incentive to spend my money, rake up debt, and pay nothing -- wealth is now a liability, didn't you hear?
On the contrary, taxation based on wealth would be much fairer than taxation based on income. Unfortunately a wealth tax is pretty much impossible to implement. The closest thing we have is property taxes.
> You hold $100. I hold $1. We live the same life, live the same services, make the same income, and you pay 100x the taxes, if you base it on wealth. Does this really feel fair?
Yes, that is fair! How about this scenario instead: I hold $100,000, but suddenly make $300,000 this year because I sold my startup. Trump holds $1,000,000,000, spends $1,000,000, and loses money on a stupid investment so his net income is negative. I pay $120,000 tax, over a quarter of my net worth, while he pays nothing. Is that fair?
You think it's fair that the government should punish the frugal for not spending every dime they make?
If you and I earn the same but I spend all of my money on alcohol and pot, while you set aside to pay for your kids' college, how is it fair that you pay more tax?
There is an argument wherein you could say that those who merely sit on their wealth are causing economic stagnation. Taxing wealth becomes an incentive for the wealthy to have their money make more wealth, instead of just sitting on a mountain of gold coins and interests rates could again rise.
Yes, your Trump scenario is fair, because he already paid taxes on that $1B that he holds, but you have not paid taxes on that $300k yet.
You should not penalize people for being frugal and saving by taxing accumulated wealth. There's already a strong incentive to pump money back into the economy via investment - interest/yield, to counteract the constant erosion caused by inflation.
Your retire with 100K, that year you lose 20K in the stock market, you pay no taxes. Next year you make 20K in the stock market. Is it fair for that entire 20K to be taxed?
> If your capital losses exceed your capital gains, the amount of the excess loss that you can claim on line 13 of Form 1040 to lower your income is the lesser of $3,000, ($1,500 if you are married filing separately) or your total net loss shown on line 16 of the Form 1040, Schedule D (PDF), Capital Gains and Losses. If your net capital loss is more than this limit, you can carry the loss forward to later years.
The losses that people like Donald Trump can carry forward are not capital losses, which is what we are talking about in this thread, and which apply to the situation
pcardh0 described in his comment. The losses Trump took are net operating losses, which he was able to take advantage of because he is in the real estate business.
If your net capital loss is more than this limit, you can carry the loss forward to later years. You may use the Capital Loss Carryover Worksheet found in Publication 550, Investment Income and Expenses, or in the Form 1040, Schedule D Instructions (PDF), to figure the amount you can carry forward.
The 3000 is the deductible limit per year based on a loss, this isn't the limit to carry over.
Wealth tax exists in other countries, though. In Norway, there's a (controversial!) wealth tax of 0.7% for amounts exceeding $170k. This tax considers liquid assets, property assets and other personal property such as cars. It is, however, controversial; it means your income is subject to being taxed twice. As far as I know, the US only has property tax, and it's mostly taxed on real estate.
The solution is to tax assets directly (i.e. the asset owes the tax) in combination with large consumption/VAT/GST tax and not tax income at all. These two taxes would be very difficult to avoid and not bias against investment verses consumption (provided you got the mix right).
Why would it affect the lowest classes more? You can apply any per person payment you like to change the effective rate of any consumption tax. For example you could give everyone a $10,000 cash payment/ tax credit / call-it-what-you-like every year. This would fix any regressive consequences of a large consumption tax.
As for taxing assets directly, it is impossible to hide most of them (land and buildings are very hard to hide). Even things like shares and bonds are near impossible to hide. About the only thing that could be hidden are things like diamonds, but these are such a tiny amount of all assets that it would not be important.
Lets get away from taxing productive activities (i.e. income) and start taxing consumption and hoarding.
You can't hide anything as we speak, when you sell your house you pay capital gains taxes on it if it increased in value.
Same goes for any other item.
Taxing "wealth" would means that the wealthy would keep being wealthy but the poor can never gain any wealth, this is what is effectively has been going in Europe since WW2 with the exception that there is a subclass of the "wealthy poor" in Europe, those who have inherited property and titles but effectively have no cash to uphold them.
Under this system you would penalize people who have savings, people who invest, and more importantly people who need to consume "more" such as people who are having kids because they need to buy a bigger house or a bigger car.
Under your system you also encourage grey and black market trading, and secondary economies that bypass the taxation system.
Taxing income is fair because it taxes what you get, taxing wealth is abysmal because it taxes what you have.
Wealth taxation would mean that any financial crisis where people lose their job would be 1000 times worse, it means that getting sick or wanting to leave work to raise children or to help parents would be impossible, it pushes people to effectively be slaves because you don't tax what they actively receive but have a regressive exponential tax on what they've accumulated in their entire lifetime effectively you tell people do not save, do not buy something which is too big, do not retire and work all your life otherwise you won't be able to afford what you already own.
You can't strip people off property they have already own, I can't even understand how would people come to think this system of taxation is reasonable, to the point of which I am beginning to question where people who post on HN live and how do they make their money.
We already live in a society where you effectively taxed for well over 50% of your income, where to buy a house you have to be endured to a bank for decades and you want to make this worse?
1. I suggested taxing consumption and assets instead of income. Income taxes would fall to zero to be replaced with taxes on consumption and assets. You might have to pay more tax on your consumption and assets, but you would have more income to pay for it.
2. Consumption taxes like VAT are hard to avoid given the way they compound through the production chain. They really are very efficient taxes and any regressive nature can be mitigated with other transfer payments.
3. A wealth tax applied directly to the asset (the asset owes the tax, not the owner of the asset) would also be very efficient and hard to avoid. It would encourage the productive use of the asset rather than hoarding.
4. All taxation is stripping people of property they already own - income tax is stripping you of your labor after all. That is what taxation is.
5. Taxing wealth would not stop the poor from becoming wealthy. If would actually help the poor to become wealthier as the only thing they have of value (their labor) would stop being taxed.
I do agree with you that a change from an income based taxation system to a consumption/asset based system would be unfair to those that have paid income taxes all their lives and saved and are now taxed on their savings. The solution would be to have a long transition period (25 to 30 years) where each year the income tax rate fell and the consumption/asset tax rose.
All of this is rather academic anyway since the rich and powerful will never allow an asset tax to be implemented - the last thing they want is to start paying tax. As Leona Helmsley famously said "We don't pay taxes. Only the little people pay taxes."
>I suggested taxing consumption and assets instead of income. Income taxes would fall to zero to be replaced with taxes on consumption and assets. You might have to pay more tax on your consumption and assets, but you would have more income to pay for it.
No, you are missing the point you can't live in a society where you are taxed regardless of your income.
If I choose to take a sabbatical from work there is no reason for me to pay tax unless I actually earn during period.
>Consumption taxes like VAT are hard to avoid given the way they compound through the production chain. They really are very efficient taxes and any regressive nature can be mitigated with other transfer payments.
VAT is a horrible taxation system which is one of the main reasons why Europe has a major issue with taxation distribution where the lower income brackets pay considerably more than they should.
>A wealth tax applied directly to the asset (the asset owes the tax, not the owner of the asset) would also be very efficient and hard to avoid. It would encourage the productive use of the asset rather than hoarding.
We already have taxes applied directly to assets they are called capital gains taxes, the different is that capital gains are taxed when they are realized, you are suggesting a system where you will be continuously taxed regardless what you do with the item which is unethical, immoral, and an abysmal idea.
We already have issues of people who cannot afford to pay an inheritance/property tax having to effectively sell their property, what you effectively suggest will kick people off their home as their houses would become too expensive to pay tax on over the year.
You are suggesting a world in which the 250,000$ house you bought where you were 30 years old is worth 4-5 times or more by the time you are in your 60's or 70's making it unsustainable.
And you don't need to live that long as most property would increase in value faster than your income would increase which means your tax liability would grow considerably faster than your ability to pay it.
>All taxation is stripping people of property they already own - income tax is stripping you of your labor after all. That is what taxation is.
No taxation is reappropriation of a portion of the gains you receive by the collective as you receive them, no one is coming to you after 10 years and say hmppfff your TV is too nice pay more tax.
The system you are suggesting would be even worse for social mobility than what we already have, Europe is touted as some social mobility heaven which is a joke, the only social mobility is for immigrants and eastern europeans, the wealthy in Europe are the ones who have been wealthy for 500 years with almost now new wealth being created; the amount of "new money" is low to nonexistent in most countries.
And as for the Leona Helmsley quote well; kek; In the US the top 20% pay ~85% of the federal tax income tax, and have pay ~70% of all federal taxes, in Europe the top 20% pay on average 40% of the total tax revenue and that is mostly because of high consumption taxes VAT, Fuel Tax, Sugar Tax etc.
And most importantly in your absurd system when there is a financial crisis and people lose jobs they go into exponential debt for no reason, in a progressive income based taxation system at worse the government goes into debt while the people at least have a chance to remain afloat by their savings and by the fact that the have already paid forward for social programs using their income.
And why should it be a problem if there is wealth inequality? When you have a company and make a lot of money you don't steal from anyone. All money that you earn is coming from customers that freely give up their hard earned money in exchange for whatever you are selling. The only one who is stealing your money is the government, actually you are robbed because they will use force if you don't hand over your property.
Also why should rich people pay more taxes than poor people? What is the moral reasoning behind that? As I see it you pay for government services and to me it is immoral that one has to overpay 100x for a service while someone else pays a fraction of that. It's as if you walk into a coffee shop and one guy pays $1 for a cup of coffee while another rich person is forced to pay $100 for the same cup of coffee.
No wonder that rich people move their money somewhere else. If a majority survives by leeching off a productive minority then eventually the system will fail and people will live in abject misery and poverty.
Oh well, we see debt in the West rising exponentially while more and more businesses leave the West and people are getting poorer and poorer. If that's not a clear vote from the productive elements of society on how well taxation is working for them then I don't know what is.
Two things, plenty of tax relief measures existed back then. Actual tax rates were much lower. In fact, the top earners pay more of the total tax pie than they did back then. Also, if you adjust the brackets based on inflation, the highest bracket is the equivalent of $5M plus. Hardly anyone paid it back then.
> Income tax rates for high earners in the US are near historic lows.
That doesn't prove much. Many people would argue that all this means is that taxes were unfairly high then, and more fair now. Others would argue the opposite.
If we are interested in defining a fair rate of tax, I don't see how historical data will help. What's fair needs to be based on something more objective.
If you are concerned about people paying their "fair share" at all then you are playing by the wrong set of rules.
Governments funding themselves by income tax is a 100 year old phenomenon. That particular form of passive revenue generation isn't an absolute. Governments subsidized roads and schools before then, whether it was from property taxes, nationalized industries, bond programs, outright expropriation or any other form of revenue generation.
Compliance with passive taxation literally requires indoctrination, and there are people that reach a place in society where they can opt out of it.
This isn't a "stance" I subscribe to, it is a reality I can perceive. It would be disingenuous for me to say I don't understand what is going on, or hand waive it away as saying these people neglect their "civic duty".
> It's also hard to say that they aren't paying their "fair share" when they provide more than half of the government's tax revenue
This doesn't really hold water.
Consider a situation where 99% of income goes to 1% of the population. Would it be fair for them to provide just 1% of the total tax revenue? Or should they provide 99%? Or is 'fair' somewhere in-between?
In other words, if they get more than half of all income, is it not fair that they pay more than half of all income tax?
Personally, I think taxing income is the wrong approach anyway. In my opinion we should be taxing wealth (LVT, that sort of thing). This is becoming more important due to capitalism's tendency to devalue 'earned income' (e.g. labour) in favour of 'unearned income' (e.g. rent). We are going to face a situation sometime in the not-too-distant future where the vast majority of people will have no means of contributing anything meaningful in the way of income tax. We are probably already there.
There needs to be a massive, institutional and cultural, dramatic shift in thinking.
Instead of seeing wealthy folks and thinking we should charge them more and more in taxes, because "they can afford it" - rather, we need to go after our government for run-away spending!
The US federal government collects more money in tax revenue alone, than ever before in the history of any country that has ever been.
It's ridiculous that so many citizens have this mindset that it's still "not enough", and worse, that people more successful than oneself should foot the bill so that you can enjoy more nice things.
If you first substract the amount needed just to get by from the income, then you'll find that the people with income below 50k$ actually pay tax off money they need, while people with high-income pay tax off discretionary money.
You can arrive at different conclusion when you start from different data. Starying from raw income and ignboring everything else serves a simple political purpose: to paint low-income people as priviledged and high-income as harassed.
Any discourse which yield outlook that any common-sense person would see doesn't match who is downtrodden and who is priviledged should be taken with a grain a salt and huge scrutiny.
There is a few GOOD aspects of offshore zones and financial secrecy laws which almost nobody takes into account.
In authoritarian countries like Russia, corporate raids made by those who are close to law endorsement structures are pretty common thing. In order to do that, they often put high pressure to a company's owners.
For them it's usually harder to put pressure on a company when it's not clear who are the owners.
Another reason is that often authoritarian countries have ridiculous regulations regarding cross-border trading. So offshore company often is used as a shell company to facilitate easier cross-border trading.
Sure, there is a big abuse of offshores but let's not forget that governments across the globe are not ultimate source of truth and goodness.
If you turn down offshore zones, you will turn down many economies across the globe (especially economies of authoritarian countries which are at the bottom economic freedom rating).
P.S. I lived 22 years in UZ, then 9 years in RU, now in NL.
Obama recently bemoaned the 8 trillion or so in wealth that is not circulating with much, if any, frequency in the US economy. As he and others have observed, it's sequestered overseas and at home, waiting for a time when confidence is higher and taxes lower. Unless a mechanism exists to prevent smart money from finding safe havens from taxes, instability and currency flux (Even China is currently failing at this task) redistribution and populist ideals are always due to fail. This is the message the "trickle down" and free market cheerleaders try to communicate, poorly.
I suppose a case could be made that people are entitled to a share of the success that they didn't help provide, but no one ever even tries to make it. It's just assumed to be true. Care to make the case?
If you lean on the nebulous idea that being born into a society is somehow a contribution to any particular success in general, I'm going to assume you're bullshitting. Fair warning.
It's less a matter of what you are entitled to, and more that society doesn't work very well with gross disparity. I always argue it's in the interests of the wealthy to mind that everyone else is happy with the way things are. Otherwise you get violent populist uprisings. Stability & happiness of the whole country are in the interest of those on top of it.
Keeping the population in line by fattening them up and distracting them only works if they believe in something bigger than themselves.
With the lack of community and the focus on individual and the self, people will not be fulfilled if they know someone else is doing so much better.
It's the classic monkey experiment with cucumbers. If all monkeys get cucumbers, they are all okay with it. If one monkey gets a cherry while the other gets a cucumber, the cucumber monkey feels it's unfair and gets angry.
You can keep humans in shitty conditions if they believe in something bigger than themselves. That the shitty conditions are justified and therefore fair.
> I suppose a case could be made that people are entitled to a share of the success that they didn't help provide, but no one ever even tries to make it.
Ha! If you genuinely want to hear people (very passionately) make this argument, try proposing a higher estate tax
The rich and corporations hiding their money is precisely the problem with "trickle down" and an unregulated free market. The solution is not to give in and pay the extortion money (ie. cut taxes), but to reign them in.
Or, you know, we could just seize the assets because of tax evasion. But that will never happen because our politicians are in the pocket of the robber barons.
Most (if not all) of these cases are not dealing with tax evasion. It's actually legal tax avoidance, so there's no way to seize the assets because no-one has actually broken the law.
Many countries have very low (or zero) tax rates, so you can legally set up a company and put your money there.
I think one way to get rid of tax havens is with an international treaty to set some minimum tax rates, and have an embargo against any country that doesn't meet those requirements. It's not just the rich who are to blame, it's the countries that turn themselves into tax havens and make this all possible.
The laws say whatever politicians want them to say. If you pay the people who write the laws to turn your tax evasion into a legalized form of "tax avoidance," the inverse can just as easily be done to turn "tax avoidance" back into "tax evasion."
Let us not forget countries have a need to compete just like companies.
If a foreign country taxes more than others you must expect some companies/individuals to move their assets to a country that taxes at a lower rate. To expect otherwise would be unreasonable. This is not tax evasion, but people making rational decisions given their options.
If we're going to appeal to authority Micheal Porter, the most cited author in business and economics and six-time winner of the McKinsey Award for the best Harvard Business Review article of the year agrees :
Porter wrote "The Competitive Advantage of Nations" in 1990. The book is based on studies of ten nations and argues that a key to national wealth and advantage was the productivity of firms and workers collectively, and that the national and regional environment supports that productivity. He proposed the "diamond" framework, a mutually-reinforcing system of four factors that determine national advantage: factor conditions; demand conditions; related or supporting industries; and firm strategy, structure and rivalry. Information, incentives, and infrastructure were also key to that productivity.
It seems there is too much focus on what is "fair". If one looks at all the opinions it's very hard to come up with unified way to define what is "fair". Going by comments one of the unifying themes is "fair"being defined as "me" paying less and someone else paying more. I think many people feel if 1% payed more in taxes and the rest payed less it would lead to more disposable income in reality it would very likely lead to asset inflation just for a different class of assets.
Maybe Obama should consider a tax amnesty? Get money in from outside the US at a low tax rate (something is better than nothing right) and get it circulating in the US creating jobs and funding startups/ideas
Tax amnesties just encourage future tax evasion, since everyone will always be waiting for another amnesty. They create a moral hazard by causing disrespect for the rule of law.
That's only the case if everything else remains the same. A tax amnesty coupled with significantly harsher penalties for future evasion would probably work pretty well.
or the government finds a way to finance itself in a way that doesn't exclude itself from economic activity
just a thought, worked 100 years ago from before it started financing itself with a passive income tax
it is entirely possible, also consider that no form of better tax compliance would solve its budget problems. The idea of paying 'fair share' is disingenuous when it is funding embezzlement within the military and defense sector waaaaay before it funds an an oft cited road or school
the biggest irony here is that I'm not a tax protester. maybe closer to a historian.
Of of course. The government should run itself as a business. Just shut down other businesses that are profitable, and take over their market. That worked in the past right.
And the lower taxes should encourage business growth, even despite the fact that the government could come in and take over at anytime.
I don't know why this is downvoted, it's correct. They used to have tax holidays regularly in Ancient Rome, and it caused people to learn to wait for the next tax holiday.
An amnesty for cash repatriation is what Trump is currently shilling as part of his job creation platform since corps like Apple have billions overseas https://www.bloomberg.com/news/articles/2015-07-22/tim-cook-... and are pressured by shareholders to not return it to the US where it will be taxed. Tim Cook will have to pay out 70 billion lump sum to the feds on that overseas pile of money.
Obama was also working on an amnesty for years and it never happened for whatever reasons. Of course this would work once then build up again overseas as they would just wait for another amnesty as explained by other posters.
Why should the biggest villains get amnesty when small time crooks get sentenced for life? I would rather prefer if the ones doing the worst crimes resulting in millions of people dying because of poverty get also sentenced for life.
>repatriating money from tax havens and using it to solve national problems, including poverty
There is little evidence that this will actually occur, otherwise places like Panama would be utopian paradises from all of the foreign cash. You can't solve "national problems, including poverty," if you refuse to tax the incoming money and instead let it continue to sit in corporate coffers.
A lot of misinformation in the comments on this feed. I can't persuade their authors that their opinions are on the wrong side of history, but I can say that as I've become wealthier I've felt the desire to tip at least 20% and secretly donate to worthy causes. I’ve also felt troubled by this because it is charity. I'm voting with my dollars for the people and businesses that I believe contribute to my community. Take that to its logical conclusion and it means that the more money I have, the more influence I have in society.
This is antithetical to my dream of a future where people are freed from fruitless labor and authoritarian control. We all live two lives - the one of our dreams and the one that happens while we’re making other plans. Right now the vast majority of us have been forced into a default life of making rent and reactionary decision making. Some of us have been lucky enough to find respite in yolo or living for others through our children. But fundamentally we’re still trapped in the rat race.
I’ve come to the conclusion that money represents time that someone has sacrificed for someone else. So the quarter of my income I saved in my bank account last year represents one year of my life, and you can tell by that ratio roughly how much I make per year. Go down a few tens of thousands of dollars and the ratio falls to zero, or even negative. Go up a little the other direction and the ratio approaches 100% and then celebrity. About half of Americans have no savings, which means they aren’t being compensated for their lives, not really. So I’ve already stolen from them, by the fact that I have disposable income and they don’t. A handful of Americans make more money from their wealth than they would working, if they ever started (optional work is called a hobby). So they’ve already stolen from me, because I have to work and they don’t. Yet people make the argument time and again that people with the least amount of money (who have stolen the least) should pay higher taxes and the people who have “acquired” the most money should pay lower taxes as some kind of post-incentive. Riiight.
So this old notion that taxation is theft doesn’t make sense because money itself is theft. Hoarding vast amounts of it from others so they have to work harder just leads to the vicious cycle of inequality we’re stuck in. No, the best way forward that I can see is to opt out of a high income and instead work every day towards a vision of the future where money isn’t needed anymore. Where people make bigger contributions doing what they want to do with their lives than they ever could by laboring under someone else’s thumb. This is going back to Jeffersonian ideas of trusting society as a whole to make governing decisions rather than leaving elites to pick winners and losers. I would rather take a median income to provide everyone else at least a basic income and watch our culture flourish than subscribe to a meritocratic ideal that crowns the fastest rat.
Not having savings doesn't mean others are stealing from them. Frugality is a way to build up savings and get out of the rat race, even if you don't earn much. But it requires conscious choice and sacrifice. Buying a $40,000 truck is completely incompatible with long term economic freedom for most, yet they're selling in huge numbers because of the relatively cheap financing available.
he says. “Previously, we thought that the offshore world was a shadowy, but minor, part of our economic system. What we learned from the Panama Papers is that it is the economic system.”
I'm doing a self funded start-up and I moved to Panama from SF to save on taxes. I was paying over 50% tax and now I pay 0% tax. By moving here my start-up went from unviable to very competitive. I am now able to undercut my only competitor and will likely drive them out of business sometime next year. Once that happens I'll raise my prices and make even more money.
This is business; if I didn't do this someone else would do it to me. Same thing happened to me with a previous company and a Chinese competitor. Lost ten years of savings and 4 years of my life on that one.
I much prefer living in the US but it was just impossible to make the numbers work. I could have survived with a 10-20% tax but there is no way that is happening in the near future in the US.
The point I want to get across is; irrespective on what you think is fair the US tax rate is uncompetitive and driving small business out of the country. Big companies get to stay because they can afford the more expensive tax avoidance schemes. Little guys like myself are either driven out of business or out of the country.
That's funny, 'cause in my experience, In America, even in California, you mostly get taxed on money you actually make. I mean, mostly; it's complicated. But mostly you pay taxes on the net, not the gross. I mostly don't pay taxes on money I spend on employees and equipment (there are a bunch of exceptions; I pay 7.5% on payroll for employees, and depriciation on capital assets is... well, a matter best left to the accountant. Still.)
And, uh, 50% sure, that's what you pay if you take home a whole lot lot of money and live in California... something that usually doesn't happen during the first years of a startup. In my experience, "starting a business" take home pay rarely gets you much above the 20% tax bracket, even in California; you re-invest the rest.
I couldn't post for a while, throttled or something. It's personal tax while I saved for later spending on the start-up. Even when optimized the US company tax rate was too high to be viable. I'm not American but could have move the company here - I wish I could afford it because I love living in SF.
ah yes, taxes do tangle time-shifting money quite a lot. The way I have seen people fund companies with labor is corp-to-corp contracting; your client pays your company instead of you, then you can (sortof) pay it out as payroll to other people or equipment that year. (for the ranges of money we're talking about here, there are often ways to write off your equipment the same year. Ask your accountant.) It is somewhat more complex than that, and it is harder to get corp-to-corp contracts than to get w2 contracts, and it still doesn't help much in carrying over money from one year to the next, but people do it, and it is a tax-efficient-ish way to get money from your labor into equipment or payroll for the business.
I lived there for ten years, learned Spanish, married a local. I did a similar thing while I was working remotely and the tax advantages were amazing. Contact me at dan.eloff @ popular Google mail.
Another way to keep US businesses competitive is to use tariffs and other economic sanctions against tax havens like Panama, preventing a global race to the bottom.
US taxes on global income if you're a tax resident of the US. There are ways to do it but at the low end it costs more than the taxes so it's not worth it.
If your a citizen or green card holder you are taxed on your global income even though you don't live there. If you were not a citizen / PR, I doubt you'd be able to legally start a business like that in the USA first.
You do get a big ~$100k income tax deduction if you don't live in the USA, but that is a separate point.
I'm not quite sure if you actually did this move from the USA.
Luckily I'm not American. For those that are you are you can renounce, or roll the dice with Panamanian banking secrecy. The token amount still really helps for small business and remote workers.
I'm curious how one can end up paying the full personal tax rate as an owner of a business. After expenses, depreciation, write-offs such as home office, vehicle, etc., you still don't have to pay yourself the entire corporate net income as a salary. Unless your lifestyle simply demands a top bracket salary.
If it's just a D.B.A, why wouldn't it be the full personal tax rate. Unless the car is _only_ for work, you can't write off the cost of the vehicle, only the operating expenses when you use it for business. Same for home office deduction: The simple deduction is $5/sq. ft. (up to a max of 300 sq. ft.). $1500/year is nice to have back, yes, but it isn't much of a needle-mover on a professional salary.
Not in WA, even in the 39.6% Federal bracket. Unless you own a very expensive home relative to your income (approximately 33x income at 1.5% property tax works out to 50% of income).
> In 2014, people with adjusted gross income, or AGI, above $250,000 paid just over half (51.6%) of all individual income taxes, though they accounted for only 2.7% of all returns filed, according to our analysis of preliminary IRS data. Their average tax rate (total taxes paid divided by cumulative AGI) was 25.7%. By contrast, people with incomes of less than $50,000 accounted for 62.3% of all individual returns filed, but they paid just 5.7% of total taxes. Their average tax rate was 4.3%.
In the state of California, "New figures from the Franchise Tax Board show that the wealthiest 1% of Californians paid 50.6% of the state income tax in 2012 — up from 41.1% in 2011. It means that of nearly 15 million tax returns, about 150,000 generated more than half the revenue." (http://www.latimes.com/local/la-me-cap-taxes-20140505-column...)
It's not very healthy to collect taxes this way. As the LA Times article indicated, California's tax revenue fluctuates based on the incomes of a pretty small number of people.
When a small number of people provide most of the tax revenue, yet the political discourse constantly accuses them of not paying a fair share, it's not hard to see why they feel persecuted and try to hide their money.
It's also hard to say that they aren't paying their "fair share" when they provide more than half of the government's tax revenue. Anyone who wants them to pay more ought to provide some kind of objective way to calculate what someone's "fair share" of tax is, and that's probably impossible.