Top Marginal Rate of 80%? BRING IT ON!

[TygrBright]

"Tax rich people at 80%! That's totally, TOTALLY unfair! How can you penalize someone for being successful and creating jobs? When YOUR tax rate is only 18%! UNFAIR! They'll leave the country!"

blah, blah, blah... more of the same, my heart bleeds, yadayadyada

Shut. The. Fuck. Up.

Because, seriously, you don't know what you're talking about. You just don't.

Using numbers like "80%!" to scare people into thinking that someone with a $10 million annual income will pay the government $8 million and have to eke out a pitiful deprived existence on the remaining $2 million (probably further reduced by state and local taxes, too! Waaaaahhhh!!) is just one more smoke-blowing tactic to keep the debate in Unreality Land.

Let's bring it back to reality, shall we?

Federal Tax rates in the United States of America are currently somewhat progressive. Here's what that means: "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate.<6><7> It can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime. Progressive taxes attempt to reduce the tax incidence of people with a lower ability-to-pay, as they shift the incidence increasingly to those with a higher ability-to-pay. (Wikipedia: Progressive taxation)

Suppose we picked 80% as our top marginal tax rate. How would that affect our $10 million income?

It depends on how progressive we make our tax code: That is, how many deductions we apply (we apply LOTS, by the way...) and how many "steps" we establish in between the base tax rate and the top marginal rate.

Just to simplify things, lets say that we allow ONLY the following deductions, and they are all 100%, on gross income, pre-tax:

Mortgage income on a primary residence; capped at $50,000
Filer's self-deductions at $8,000 or $15,000 for 2 adults filing jointly
Dependents at $10,000 per head
Higher education tuition credits at 20% up to $15/year (round to $3,000 per kid)
Retirement contributions up to $5,000 per adult in the household

We actually have thousands more, but let's keep it simple.

Now let's say we establish the following tax rates for households with 2 adults filing jointly (maximum amounts rounded up):

0% on income up to $20,000
15% on income between $20,001 and $34,999 (maximum $2400)
18% on income between $35,000 and $49,999 (maximum $2700)
20% on income between $50,000 and $69,999 (maximum $4000)
25% on income between $70,000 and $99,999 (maximum $7500)
30% on income between $100,000 and $124,999 (maximum $7500)
35% on income between $125,000 and $199,999 (maximum $26250)
40% on income between $200,000 and $499,999 (maximum $120,000)
45% on income between $500,000 and $999,999 (maximum $225,000)
50% on income between $1,000,000 and $1,999,999 (maximum $500,000)
55% on income between $2,000,000 and $2,999,999 (maximum $550,000)
60% on income between $3,000,000 and $3,999,999 (maximum $600,000)
65% on income between $4,000,000 and $5,999,999 (maximum $1,300,000)
70% on income between $6,000,000 and $7,999,999 (maximum $1,400,000)
75% on income between $8,000,000 and $9,999,999 (maximum $1,500,000)
80% on income over $10,000,000

Let's compare the annual tax bill of two otherwise-identical households, Household A in the "25% bracket", and Household B in the "80% bracket".

Household A:
Gross income from two adults with two and a half jobs between them: $75,000
Deductions: Joint filing plus dependent: $25,000; Mortgage interest of $5,000, one kid in community college for $1,000, and both adults contributing to retirement funds at $10,000. Total (pre-tax) deductions: $41,000

Taxable income: $34,000 (After deductions, surprise! They're no longer in the 25% marginal bracket-- all their income is taxed at 15%.)

Actual taxes due: $2,400

Household B:
Gross income from two adults with two jobs between them: $10,000,000
Deductions: Joint filing plus dependent: $25,000; Mortgage interest of $50,000 (of course!); one kid at Ivy League school $3,000, both adults contributing to retirement funds at $10,000. Total (pre-tax) deductions: $88,000.

Taxable income: $9,012,000 (After deductions, surprise! They're no longer in the top marginal bracket-- this happens a lot more under our current thousands-of-deductions-and-low-top-marginal-rate system.)

Actual taxes due: $4,954,350 The poor bastards will have to try and struggle along on a mere five mil, give or take a few pennies.

My heart bleeds, really, it does.

Now, this illustration is vastly oversimplified, particularly in the area of deductions, as well as the actual calculations for which income falls in which brackets. Nonetheless, the basic truth is that in a progressive taxation system, top marginal rates do not actually represent the real tax rates that wealthy individuals pay. They are not meant to. They are (apparently) only meant to scare the willies out of unthinking fools who fantasize that someday they'll be rich, and don't want the ebil gummit "confiscating" their hard-earned lottery winnings.

There are plenty of other things we can do to ease the terrible, terrible burden of taxation for these poor, oppressed wealthy people. Some deductions can be pegged to certain tax rate brackets on the assumption that some kinds of luxury expenditures actually DO create jobs (and some do,) thereby encouraging those who can afford to spend money on luxuries to do so, here at home domestically, where the expenditure will enable others to earn money from it. That was the original rationale for extending the mortgage interest deduction to second residences, for example. Certain categories of business and charitable expenses can be assigned deductions that will disproportionately soothe the pain of taxation for the downtrodden plutocrats, as well.

Top marginal rate of 80%? Doesn't scare me. And if I ever manage to make it into a top marginal bracket, I'll take all my legitimate, ethical, legal deductions and pay my final tax bill proudly, knowing that I'm making it possible to educate kids, care for the needy, drive on good roads, maintain a communications infrastructure, and stand tall in the community of nations.

defiantly,
Bright

[FiveGoodMen]

1. Should be fine. I think it was 90% once.

And in the UK it was 95% when George Harrison wrote "It's one for you nineteen for me" ... but he still got rich.

[FogerRox]

25. US, 94%, 1944 thru 1945.

UK recently went from 50% to 55%

[russspeakeasy]

2. Bright...your post makes too much sense to be taken seriously.

If you decide to run...you'll get my vote...I think it would make a nice single issue campaign.

[Cirque du So-What]

3. Throw me in that briar patch!

I'd gladly pay the marginal rate of 80% if I made $10M / year! I'd like to remind the teabaggers that in the good ol' days - their beloved '50s - the marginal tax rate averaged right around 90% throughout the decade for income over $250,000 / year.

http://en.wikipedia.org/wiki/Income_tax_in_the_United_States#Federal_income_tax_rates

An 'economic miracle,' our economy was - despite the 'job creators' having to pay a little more than the rest of us. Funny how this never gets mentioned on any of the talking-head corporate-media news-tainment shows.

[BobbyBoring]

4. Mine too

Run Bright run!

[JohnWxy]

5. the published rates have little to do with what people actually pay in taxes. That's what tax

attorneys are for. To figure out how to legally reduce your tax liability as close to zero as possible. Sometimes they can even have The Government (us) paying the filer money! This gives new meaning to the term taxpayer. But this is harder to do when your income comes entirely from a salary. The wealthier and those in business have many ways to shelter income that the basic wage earner does not. Plus, they have the money to hire the tax attorney!

[Sarah Ibarruri]

6. If I were mega-wealthy, I would be living like a royal at 80% tax rate

I'm so F sick and tired of the GOP lackeys for the rich.

[defendandprotect]

7. Unfair -- ? Charge them for EXPLOITING NATURE and PLANET -- !!

There is no capitalism without the exploitation of nature and the planet --

and, btw, humanity as "labor" -- !!

[Bluesbreaker]

8. Excellent work!

Nice job of research and marshalling your facts to present a very compelling case for a version of tax reform that will deliver tax fairness.

This needs to be done at the state level as well. In my state, Hawaii, the top 1% pay 6% of their income in taxes, while the poorest 20% pay 12.3% of theirs to the state. Reducing the amount coming from regressive sources, like sales and property taxes, and increasing the amount coming from a progressive state income tax can go a long way toward making our tax system fair for all. All states should have a state income tax, with a large number of brackets to capture revenue from the tax-dodging wealthiest in the population.

Good sources:
Institute on Taxes and Economic Policy (http://www.itepnet.org) Check out the ITEP Guide to Fair State and Local Taxes
Citizens for Tax Justice (http://www.ctj.org)Contains digests of tax issues by state

[JHB]

9. I have a plan called "55 minus 10"

short version:

1) take the rates from 1955, lop 10% off each bracket (20% becomes 10%, 22% becomes 12%, etc., on up to 91% becomes 81%)
2) adjust the bracket boundaries and personal deductions by a factor of 10 ($600 deduction becomes $6000, the $2,000 bracket becomes $20,000, etc.)

The main point of basing it off of the 1955 rate is to draw attention to the fact that this isn't some pie in the sky theory, this was in effect during the golden age of the American middle class.

An added bonus is the "throw it back in their faces" factor: when someone inevitably calls such a plan "communism", point out this is lower than the rates we had back then, and are they saying WE were the communists? At the height of the Cold war? And if so, what were the Soviets?

[JohnWxy]

10. if the end result after deductions is regressive you won't get a growing economy because the rich

future you hope for (good luck, hot shot) will be much less likely to materialize if you are shifting too much of the tax burden to the middle class by manifold deductions that renders the progressive tax code regressive. If you want to hold out the fantasy of "someday I'm gonna be rich", you have to realize that achieving those riches is very dependent upon a healthy growing economy.

This requires a middle class which has enough take-home pay to buy all the products companies would like to sell them. But if you (in your dream of being wealthy) have so many deductions available to you, that you in the final analysis, put too much of the tax burden on the poor & middle class 'buggars' - then you will not have the kind of aggregate demand that is needed for a strong, growing, job creating economy which will enable companies to sell product, to make and grow profits that will enable the smart guy you think you are (how many smart guys have awakened 30 years later to find themselves in a run-of-the-mill job, with three kids and a mortgage, and, sorry, no corner office?) to get ahead (if you've got more drive than the other 10 smart guys competing with you).


"And if I ever manage to make it into a top marginal bracket, I'll take all my legitimate, ethical, legal deductions and pay my final tax bill proudly, knowing that I'm making it possible to educate kids, care for the needy, drive on good roads, maintain a communications infrastructure, and stand tall in the community of nations.".... trickle down bullshit.

.... you are much less likely to get rich, unless there is a middle class with enough money to support a growing economy where companies can sell plenty of product and grow profits. Having a tax code that allows deductions that turns a 'progressive' tax system into a regressive one does not produce adequate economic growth. this is why the record shows that the economy consistently does better under Democratic administrations.


http://www.nytimes.com/interactive/2008/10/14/opinion/20081014_OPCHART.html">How an investment would have fared under Republican or Democratic administrations





The idiot Republicans got just about everything they wanted in the Bush era: Tax cuts - going mostly to the highest income brackets, and deregulation of financial services industry and home mortgage lending and what did it get us? - the Trickle Down Disaster - the greatest economic disaster this country has seen since the First Great Depression...

http://www.washingtonpost.com/wp-dyn/content/article/2010/01/01/AR2010010101196.html">The Bush economy: The Aughts were a lost Decade for the U.S. Economy and Workers

For most of the past 70 years, the U.S. economy has grown at a steady clip, generating perpetually higher incomes and wealth for American households. But since 2000, the story is starkly different.

The past decade was the worst for the U.S. economy in modern times, a sharp reversal from a long period of prosperity that is leading economists and policymakers to fundamentally rethink the underpinnings of the nation's growth.

~~
~~

There has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well.

Middle-income households made less in 2008, when adjusted for inflation, than they did in 1999 -- and the number is sure to have declined further during a difficult 2009. The Aughts were the first decade of falling median incomes since figures were first compiled in the 1960s.


(more)

[Recoverin_Republican]

13. Jesus, great stuff. i used to be a sucker for the Trickle down bullshit. found out the hard way

what a load of crap it is.

[w0nderer]

11. k&r

this needs to be on every editorial page, on every lip discussing taxes

[dogmoma56]

12. top 1% richest hold 42% of Americas Financial Wealth, 6 x the bottom 80%, top 20% have 93% >link>

the richest 400 families hold 1.3 TRILLION DOLLARS. and pay the ~ 0 to 17% income tax, the top 5% hold 72% of Financial wealth and usually pay lass than 23% income tax.

http://sociology.ucsc.edu/whorulesamerica/power/wealth.html
the top 1% richest hold 42% of Americas Financial Wealth, 6 times that of the bottom 80% who hold only 7%.. so the top 20% hold 93% of Financial Wealth. that is why there is a Recession.. nearly all the available money has been looted by the rich. there isn't enough left to run an economy.


people dont know what is going on,.. these guys are Dominionists, the whole GOP has been infected

the Tax Cuts for the rich, trickle down economics, the New World Order, Globalism.. but who actually runs the GOP..?? what trickles down isnt money.. it is gods blessings for "submitting" to ...god's Great Plan.. which is for the poor to make the rich richer and accept it as god's will'

these are all Dominionist Principals..!!

these freaks work in the Shadows. in 1934 a Nazi refugee Abraham Vereide started what is now the "C st Family", the Christian Fellowship, A.K.A.the Christian Mafia.. and have taken the Evangelical movement into the Dark Side. THEY ARE BY DEFINATION..the Anti-Christ, don't get me wrong, i am a Buddhist i don't believe in the 'Revelation's', but i did grow up in the Free Holyness Pentecostal church. when i was 6 our Sunday school taught us Revelation's. then Romans, Acts, then Revelation's again, but it didn't stick, even as a small child i new what crazy was when i saw it..

the Dominionists believe that God/Jesus only bless the Rich, Wealth and Power is proof of gods Favor of a man/corporation, so it is a sin to tax them. God Speaks directly to the rich/Powerful, the poor must "Submit" totally to their will, and become a slave to god. the poor/sick are being punished by god so it is a sin to help them, or not to torment them.

Trickle Down doesn't mean money, it means only gods blessings to those who followed gods greatest plan and made the rich richer. the New World Order is the Utopian Paradise created when all the worlds poor submit to gods great plan, and become slaves.. the GOP is Theocratic Cargo Cult of OCD psychotic narcissistic wealth/power hoarders.. in the 30's Depression FDR appointed Abraham Vereide to a Cabinet position to start programs for the poor to bring them out of poverty.. Vereide's plan was to start Dominionist evangelical "Revivals" all over the country, only the Poor who came and prayed thru and totally submitted to the Dominion of the rich and Gods great plan would get help. he was replaced ..he immediately began undermining the New Deal.. still the fundamental purpose of the GOP is to repeal the New Deal, because it is the work of Satan, communists and Socialists, all interchangeable.

this is back ground info

... this is one of the best..especially from Straus to making slaves
http://doggo.tripod.com/doggchrisdomin.html

this is very good
http://blog.buzzflash.com/hartmann/10016

this is older, more is known about them now that Jeff sharlets book is out
http://www.insider-magazine.com/ChristianMafia.htm

http://www.yuricareport.com/Dominionism/TheDespoilingOfAmerica.htm




the GOP's agenda is really obvious.. it is simply Dominionism.. they don't care who they hurt, who dies in the process.. they are Elite Favorites of god who hates the poor under Divine orders to control the World.. no Quarter for unbelievers.

the best books on the subject, he lived with them..wonderful writer

http://www.amazon.com/Family-Secret-Fundamentalism-Heart-American/dp/0060560053/ref=sr_1_1?ie=UTF8&s=books&qid=1298244911&sr=8-1

http://www.amazon.com/Street-Fundamentalist-Threat-American-Democracy/dp/0316091073/ref=pd_sim_b_1

the power the dark side has over the government is frightening, both parties

this really sounds conspiratorial and crazy, but read Sharlets book, cheap on Amazon ~$4.08, i have been researching this for a while. they count on people thinking it's tooo crazy to be true. they are organized and spread in secret cells. people who join are often unaware of what it is, and become indoctrinated. but it really explains all the weird stuff they do. they openly admire the Nazis and murderous dictators. it is always rationalized like.. 'yea, the genocide was unfortunate nut they were really well organized'. it was bad enough before leo strauss amped it up with Machiavellianism with an economy based on perpetual war, a government that lies and spins the horrible things they do. tortures people who question it. they have studded morally fallen religious leaders to learn how to spin all the criticism away and come out with opinion poles better than they were before they got caught with their pants down with a homosexual Crack whore.

they believe the Rich can do no wrong. they dont believe god/jesus forgive the evil the rich do.. they believe that god/jesus simply dont remember the sins of the rich and powerful. nothing to remember.. it is really a narsistic psychotic religious cult

[airplaneman]

17. It gets more interesting when you consider income vs taxes paid

These figures are available on wikipedia and many other sources.
Income:
The top 1% take in 25% of all available income.
The top 20% take in 93% of all available income.
The bottom 80% (what a minority) only have 7% of all income available to them.
Now taxes:
The top 1% pay 38% of all taxes. Compare this to income of 25% 38/25 = 1.52
The top 20% pay 79% of all taxes. Compare this to income of 93% 79/93 = 0.85
The bottom 80% pay 21% of all taxes. But with 7% of the income we are paying 21/7 = 3.00
Now is their any question who is getting shafted.
If the top 1% was treated the same as the bottom 80% they should be paying 75% of all taxes.
Airplane

[dogmoma56]

18. this has all achieved thru BRIBES to elected politicians. the level of wealth disparity is criminal

[AlbertCat]

14. There's no need to shoot up to 80%

A mere 40% would be tons of dough!

****

But then if we stop fighting undeclared wars all over hell's half acre.

And make Corporations pay a mandatory minimum tax of around the European rate... 17%? 18%?

Make mega churches pay too. Make all churches pay taxes on their businesses.


There'd be enough for everyone to have a personal tax break and fix some bridges.

[Doctor_J]

19. Exactly. And politically viable

asking for 80% is silly.

[FogerRox]

26. Ask for 80%, settle for 60%

[mckara]

15. I Agree! Dispel "Trickle Down," Once and For All

[av8rdave]

22. Yes - we need to completely debunk "trickle down"/supply side economic theory

It's snake oil, designed to convince the masses that the wealthy deserve to be coddled. Nothing more.

We need to be asking the supply side disciples point blank: OK, the wealthiest Americans have enjoyed historically low tax rates for a decade. WHERE ARE THE JOBS this policy was supposed to produce?

[Beartracks]

16. Like the only measure of success in America...

... is how rich you are.

The entire middle class that cropped up in the post-WWII years was driven to make life better for themselves and for their children, and the economy boomed (even with the highest tax rates ever), and standards of living became the greatest in the world, and a social safety net was constructed, and rights were extended to previously disenfranchised people, and college education became the norm. So it comes as a shock to discover that conservatives regard each and every member of that middle class as a failure. What a shame; not one middle class worker was successful. So now they must be "punished" by being driven back into the poorhouse to grovel for crumbs while the spoils of all that hard work go to the few who were rich enough to consolidate power and skew everything to their economic benefit.

But don't worry. The jobs should coming any minute now.

========================

[yodermon]

20. Also it incentivizes the Ownership class to keep their money *IN* their companies instead of drawing

extravagant bonuses/salaries, etc. (I.e., why give all that $$ to the gov't in the form of 80% marginal tax rates? I'll keep my salary below that bracket, thank you very much)

If the money stays *IN* their companies, then they can use that $$ for R&D, equipment, STAFF (jobs), etc: all of which has a stimulating effect on the economy.

Not one pundit, politician, or commentator, left right or center, ever makes this particular argument. I don't understand why.
Maybe because of the international nature of business nowadays, companies just off-shore the profits? etc?

[av8rdave]

21. Would anyone have access to tax data from the 90% top rate days?

I have always contended that in those days, nobody actually paid that rate.

To expand on TygrBright's point: In a progressive, incentive - based taxation system, the published "tax rate" is merely a starting point for calculating a tax return.

As a rule of thumb, though, the lower one's tax bracket, the closer his/her ACTUAL tax rate will be to the published rate (there are exceptions to this, of course). Those in the highest tax brackets tend to have more financial activity in their lives - businesses, investments, capital gains, etc., that open doors to tax breaks and incentives.

This is actually an intentional feature of the tax code, which makes the Reagan and Bush tax cuts on top income earners particularly unfair.

[FogerRox]

27. Correct, that 90%+ became an effective rate of 44% to 45%

at best.

[blackspade]

23. Excellent OP!

[dpbrown]

24. I wish I could recommend this more than once

This kind of analysis is so important.

[SnakeEyes]

28. Awesome first post but

Can someone explain to me how I counter the right wing argument they bring up about not working past a certain point or pushing income into future years when taxes are that high; citing Reagan talking about how he wouldn't bother doing a third movie every year since the pay would be in the highest bracket and he wouldn't get to keep much of it?

[av8rdave]

30. That argument assumes that the tax table rate is the tax rate actually paid. It isn't.

In Reagan's case, he wouldn't do a third movie every year because the first two would be so terrible that nobody would be interested.

[TygrBright]

31. I guess I'd counter that argument with something like this:

"So, you're saying that people will stop working for the rest of the year when they hit a high tax bracket?"

"Yeah, why bother?"

"Right on! That leaves more work for others who need the job(s)! What a GREAT unintended consequence! It's like achieving a shorter work week, without having to worry about the political battles! When you earn enough to pay for whatever lifestyle you want to maintain for the rest of the year, you just stop working! GREAT!! Who thought of that? I'd like to shake their hand, it's BRILLIANT! It's yet another reason to make the tax code even more progressive and increase the top marginal rates! Fabulous!"

helpfully,
Bright

[midnight]

29. I'm sure if the 80% paid their fair share many more of us would have a level playing field to

acquire this kind of wealth too...

[L0oniX]

32. Kick