What It Takes to Be in the 1% Around the World

[valhalla360]

Originally Posted by rhumby

To address the points made about the additional risks involved with capital gains vs ordinary income, that's what capital loss carrybacks are for - you can apply the losses in past years against the capital gains in later years. No need to have absurdly low capital gains tax rates relative to ordinary income rates.

Explain how carry backs help when you are bankrupt because your business failed.

Carry backs are just acknowledging that over a longer period of time, you made less money with your business. It's addressing the limitations of an annual taxation basis.

If you start a Christmas Tree farm, you pay for the land, property taxes, staff to plant, trim and otherwise maintain the trees for maybe a dozen years before there is any profit...it's not as if suddenly in year 12, you have a huge profit and there were not prior costs. (if 12yrs is not the correct age for Christmas tree harvesting, feel free to update but the point is the same).

[JBP]

Originally Posted by valhalla360

True...the bottom 50% of earners pay 0% and $0 taxes.

That is, of course, hyperbole and not even close to accurate. In fact the bottom 40% collect about 9% of the total income and pay about 7% of the total tax burden.

[danstanford]

Originally Posted by JBP

That is, of course, hyperbole and not even close to accurate. In fact the bottom 40% collect about 9% of the total income and pay about 7% of the total tax burden.

J, can you tell me where you found this data? I find it a very compelling topic and a very difficult one to find much unbiased data on.

Dan

[valhalla360]

Originally Posted by JBP

That is, of course, hyperbole and not even close to accurate. In fact the bottom 40% collect about 9% of the total income and pay about 7% of the total tax burden.

It's true when discussing federal income tax.

But even if you want to switch to total tax, it's far less hyperbole than claiming the 1% don't pay their fair share.

[Mike OReilly]

A recent (2018) analysis by a couple of Berkley economists attempted to analyze total tax burdens in the USA since the 1950s.

They break it down by major tax reform period. It shows the highly progressive nature of the US tax system in the 1950s (the top blue line), and how it dramatically drops for the rich and rises (less dramatically) for the poor over time.

The US has morphed into generally a flat-tax structure, EXCEPT for the ultra-ultra rich where they show a regressive trend (IOW, the very rich pay less).

https://eml.berkeley.edu/~saez/SaezZ...0JEP(NBER).pdf


ADD: I would love to see similar analysis for other countries, like my own (Canada), and the oft-lauded northern European countries.

[danstanford]

Originally Posted by valhalla360

It's true when discussing federal income tax.

But even if you want to switch to total tax, it's far less hyperbole than claiming the 1% don't pay their fair share.

It is probably not funny, but worth noticing how we conflate these topics to make a point. Sadly, in my experience, asking a question about an element of one of these topics makes the readers on both poles jump to a conclusion about the point they think you are really making.

Hopefully, over time, we will be able to accept a correction to an incorrect assertion as just that and then to ask the real question in a less oblique way. For example I think we should be able to notice and examine the percentage of income the bottom 40 % are earning as an academic question worth pursuing and still be able to talk about the reality of the taxes paid by the top brackets.

[JBP]

Originally Posted by valhalla360

It's true when discussing federal income tax.

But even if you want to switch to total tax, it's far less hyperbole than claiming the 1% don't pay their fair share.

Yep, saying "the rich don't pay taxes" or claiming "the rich pay all the taxes" are both wrong. (I'm not sure one can say that one lie is somehow less wrong than the other).

Excluding the extreme examples of the ultra rich like Bezos, Trump, Apple, etc. who dance on the edge of the law to avoid paying their fair share of taxes. Most of the 1% probably pay whatever taxes the law requires without extreme shenanigans.

In the USA when you consider total tax, who pays more taxes, the rich people or ordinary people, depends a lot on which state you live in.
State taxes may or may not be income based, property based, or flat sales taxes. Usually some combination. "Effective" state tax rates, when normalized against each other according to income, vary widely from over 10% rates on the top 1% of the wealthy in states like NY and CA, to under 3% rates in states like NV, FL, SD, WY. In blue states you'll usually find the rich pay a higher total tax rate than the general population, in red states the rich pay a lower total tax rate than the general population. In no state does the bottom 50% pay no taxes. In no state do the top 1% pay no taxes. Furthermore, a significant porton of the taxes we pay are flat taxes like sales taxes, utilities, license and registrations, etc. or hidden taxes like gas taxes and tariffs. A quick Google search claims these account for more than half of the total taxes we pay. These, of course, do not depend on how much you make, but on how much you use, so claiming the rich pay all the taxes or the poor pay all the taxes is irrelevant. (Well, OK, the rich are obviously the biggest consumers and so pay taxes on all their stuff, but it's the same RATE as everyone else).

[MicHughV]

Musk says he has to stroke the big check to Uncle Sam

Elon Musk Says He Will Pay More Than $11 Billion in Taxes ...https://www.wsj.com › articles › elon-musk-says-he-will-p...

[valhalla360]

Originally Posted by Mike OReilly

A recent (2018) analysis by a couple of Berkley economists attempted to analyze total tax burdens in the USA since the 1950s.

They break it down by major tax reform period. It shows the highly progressive nature of the US tax system in the 1950s (the top blue line), and how it dramatically drops for the rich and rises (less dramatically) for the poor over time.

The US has morphed into generally a flat-tax structure, EXCEPT for the ultra-ultra rich where they show a regressive trend (IOW, the very rich pay less).

https://eml.berkeley.edu/~saez/SaezZ...0JEP(NBER).pdf


ADD: I would love to see similar analysis for other countries, like my own (Canada), and the oft-lauded northern European countries.

So if we believe this chart, in the 1950's, the top earners were paying 70%...not buying it.

Probably a function of how accurate the data is. In the 1950's it was just easier to hide income in the pre-electronic days, so their income appeared lower and thus the effective tax rate appeared higher. Today, it's much harder, particularly for high net worth individuals to hide income as there is so much data to mine, so their incomes appear higher resulting in lower apparent tax rates.

Of course, they conveniently start in 1950. If you read thru the graphs all crater right around WWII...then they level out and slowly climb back towards the pre-war levels. So it may also be that we are comparing with nostalgia a golden age that can not be reproduced.

[valhalla360]

Originally Posted by danstanford

Hopefully, over time, we will be able to accept a correction to an incorrect assertion as just that and then to ask the real question in a less oblique way. For example I think we should be able to notice and examine the percentage of income the bottom 40 % are earning as an academic question worth pursuing and still be able to talk about the reality of the taxes paid by the top brackets.

Never going to happen. Taxes are inherently political and no one funds research with a goal of supporting their political position.

It's such a murky area of thousand of hidden (and sometimes not so hidden) agendas, we will never see anything remotely like an unbiased analysis in our lifetime.

[rhumby]

Originally Posted by valhalla360

Explain how carry backs help when you are bankrupt because your business failed.

Carry backs are just acknowledging that over a longer period of time, you made less money with your business. It's addressing the limitations of an annual taxation basis.

If you start a Christmas Tree farm, you pay for the land, property taxes, staff to plant, trim and otherwise maintain the trees for maybe a dozen years before there is any profit...it's not as if suddenly in year 12, you have a huge profit and there were not prior costs. (if 12yrs is not the correct age for Christmas tree harvesting, feel free to update but the point is the same).

Carry backs, and carry forwards, are one mechanism the tax code uses to encourage folks to start/invest in business (a good thing). The tax code also uses the very low 15-20% long-term capital gains tax rate for the same reason. My point is the tax code is too extreme in it's favor towards those that have already "made it". We could easily encourage the degree of current investment and at the same time collect a more fair amount of taxes. For example, there could be a lifetime max on the amount an individual could apply the the lower rate towards - lets say $20 million.

I don't understand why you use the example of a bankruptcy. If your point is that higher a capital gains tax rate would cause bankruptcy, you need to provide more support for why that would be necessary result.

[Mike OReilly]

Originally Posted by valhalla360

So if we believe this chart, in the 1950's, the top earners were paying 70%...not buying it.

Probably a function of how accurate the data is. In the 1950's it was just easier to hide income in the pre-electronic days, so their income appeared lower and thus the effective tax rate appeared higher. Today, it's much harder, particularly for high net worth individuals to hide income as there is so much data to mine, so their incomes appear higher resulting in lower apparent tax rates.

Of course, they conveniently start in 1950. If you read thru the graphs all crater right around WWII...then they level out and slowly climb back towards the pre-war levels. So it may also be that we are comparing with nostalgia a golden age that can not be reproduced.

You're going to have to do better than to just say you don't believe it.

The full paper is there, and there's plenty more like it. Your so-called "cratering" is following the the 1920/30s which is often noted as the most excessive period of wealth and income inequality in modern history. All the graphs show the result of post-war efforts to bring more equity to the economic system though progressive policies like the New Deal.

These policies have been systemically eroded since the 1970s, so we now see a return to something that looks like the 1920s.

The point of the graph I presented is to show that the US roughly has a flat-tax regieme, except for the top 0.01%.

[GordMay]

Originally Posted by valhalla360

It's true when discussing federal income tax.
But even if you want to switch to total tax, it's far less hyperbole than claiming the 1% don't pay their fair share.

What's "fair"?
Here’s an interesting [short] essay on Social Fairness, discussing equality, equity, & justice, and the cross-cultural differences in how fairness-related decision making develops:
➥ https://open.maricopa.edu/culturepsy...cial-fairness/

And [referenced in above essay]
“Fair Is Not Fair Everywhere” ~ by Marie Schäfer et al
➥ https://journals.sagepub.com/doi/abs...56797615586188

[valhalla360]

Originally Posted by rhumby

Carry backs, and carry forwards, are one mechanism the tax code uses to encourage folks to start/invest in business (a good thing). The tax code also uses the very low 15-20% long-term capital gains tax rate for the same reason. My point is the tax code is too extreme in it's favor towards those that have already "made it". We could easily encourage the degree of current investment and at the same time collect a more fair amount of taxes. For example, there could be a lifetime max on the amount an individual could apply the the lower rate towards - lets say $20 million.

I don't understand why you use the example of a bankruptcy. If your point is that higher a capital gains tax rate would cause bankruptcy, you need to provide more support for why that would be necessary result.

While it is designed in part to encourage business, it's based on the inherent unfairness of expecting an owner to pour money into a business potentially for years while seeing no profit then ignoring those losses when the business starts to generate gross revenue.

Bankruptcy maters because most new businesses fail (ie: they go bankrupt). So if you have a business that has been limping along while the owner feeds it cash and builds the foundation...then just when it's about to turn the corner, suddenly start charging them high taxes without considering the losses in prior years...that's pretty unfair.

Again, it's simply a way to account for the fact that business profits don't always (almost never) align with the formal tax year.

[danstanford]

Originally Posted by GordMay

What's "fair"?
Here’s an interesting [short] essay on Social Fairness, discussing equality, equity, & justice, and the cross-cultural differences in how fairness-related decision making develops:
➥ https://open.maricopa.edu/culturepsy...cial-fairness/

And [referenced in above essay]
“Fair Is Not Fair Everywhere” ~ by Marie Schäfer et al
➥ https://journals.sagepub.com/doi/abs...56797615586188

Interesting papers, I plan to re-read them to fully grasp all that is being said. Thanks for doing the research to find them.

I would point out that a simple observation of the number of people on the side of limiting the paid access for Covid sufferers based on their vaccination status would indicate that we struggle to define both equity and equality. Many people I know that fall on the side of a 'better' balancing on both the income and tax rates for the 1% are less clear on sharing their health resources in an equitable way.