The Pawlenty Plan/My plan.

[Ladewig]

The retired well off often take low paying jobs to keep busy. Lots of well off people and their kids are working day jobs. I would guess that anybody with a job probably knows this.

I've worked all my life and I have seen very little evidence of this claim.

Could you ballpark some estimates for the percentage of jobs in the U.S. that are held by people who don't need jobs and the percentage of those jobs that could easily be filled by someone else?

 

[MinnesotaBrant]

Working out net worth is notoriously difficult. To work out my net worth you would need to value everything I own. Who is going to do this ? Who is going to come round my house and go through Mrs. Don's jewellery box and appraise everything in there ? How much is my 1989 Jaguar XJ-S worth ? What about our collection of watercolours ?




I got my numbers from applying the figures listed against my business's figures.

Currently my company makes just over £100,000 a year profit. If the tax rate on business is currently 35% I would pay £35,000 in business taxes. If this is lowered to 15% I would only pay £15,000 - a saving of £20,000.



And this relates to what exactly ?

Yeah it is a question of whether its off the top or not. The rich would pay off the top, plus there would be a denial of service for grandma, etc. Plus, we might spit at you as you pay. Looks like you would pay 25% if it ran though just you. Since you are well off you would pay full price for everything the government provides, including the spit. Can you see that this tax plan is not balanced towards the rich? What else. Nobody disputed whether the total gross income of the USA is 12 trillion dollars. Instead people are wondering if well off people work. Lets hope they do not. Then there is no problem and its a non issue. I don't know, maybe the rich would like this plan. 25% off the top. Pay full price for everything. Some are doing it anyway. Why not all of them?

Oh, also, in america, corporations pay almost none of the tax burden. Maybe 1/5th. In a couple years I am probably going to be one of those rich people I hate since I stopped working for the man. It's not even hard to make money in a business in america, its just a different mind set. Your basic job prospects in america are sloping downwards in pay and benefits, and getting taxed up upwards anyway so why continue being exploited? I chose to join the corporate side of the fence because thats where the money is.

Tricky. Yeah I notice the editing you did. In this case you simply didn't read all the posts. The factor as to whether or not you would get deductions would be net worth. The well off wouldn't get any. With an income of 58k for two people. me and my wife would pay 3 thousand 800 dollars as opposed to 5k or so I am paying. A couple with assets who could afford to pay the full boat would pay 5 thousand 800 in taxes. There are millionaires out there who are unemployed and are currently paying no income taxes whatsoever you know.

 

[The Don]

Yeah it is a question of whether its off the top or not. The rich would pay off the top, plus there would be a denial of service for grandma, etc. Plus, we might spit at you as you pay. Looks like you would pay 25% if it ran though just you. Since you are well off you would pay full price for everything the government provides, including the spit.

I wouldn't pay anything like 25%. Although my business is very profitable, I draw a comparatively small income from it. Your proposal only makes things even better for me.

I'd only be paying income tax at a marginal rate of 10% (as opposed to 25% now) and my business will be paying tax at 10% (as opposed to 35% now).

I'm exactly the sort of person who would do very well under your scheme.

Can you see that this tax plan is not balanced towards the rich?

Well it seems to be balanced towards the rich. After all I am comparatively well off and I'd be saving an absolute bundle,

What else. Nobody disputed whether the total gross income of the USA is 12 trillion dollars.

I didn't challenge it because I have no idea what the current gross income is. This site suggests a little under 10 trillion but of course this includes ALL income, whether it is personal or corporate income whether it is earned or inherited.

There is an enormous difference between national Gross Income and the sum of the individuals' personal income.

For example, you are proposing taxing the transfer of property from spouse to spouse following that spouse's death (inheritance is included in Gross Income).

Corporate Gross Income also tends to overstate because it is calculated as sale price - cost of goods sold, it doesn't take into account other major costs (such as the cost of capital).

Instead people are wondering if well off people work. Lets hope they do not.

I was challenging one of your more remarkable proposals, that if someone didn't want to work (because taxes were too high) then their job should be given to the deserving poor

Rich people don't want to work then fine. We will give your job to a deserving person on unemployment.

I was questioning whether someone off the unemployment line would have the skills to do that job. The reason that great paying jobs pay well is that there is a barrier to entry. This could be skills related (doctor, Pro-sportsman), contacts related (agent, salesman) or risk related (drugs dealer, hitman). It's a fallacy to assume that just anyone can do any job.

Then there is no problem and its a non issue. I don't know, maybe the rich would like this plan. 25% off the top. Pay full price for everything. Some are doing it anyway. Why not all of them?

Getting anyone to pay taxes is a challenge. Getting the rich to pay taxes is more of a challenge.

Oh, also, in america, corporations pay almost none of the tax burden. Maybe 1/5th.

Tax revenues by source are summarised here:

http://www.taxpolicycenter.org/briefing-book/background/numbers/revenue.cfm

Corporation tax provides 12% of federal tax income. Payroll taxes account for 36%. Here in the UK, the majority of payroll taxes are borne by the employer. i don't know what the breakdown is like in the US.

Corporation taxes are low in the US for a number of reasons including effective lobbying and a fear that high corporate taxes will curtail entrepreneurship.

In a couple years I am probably going to be one of those rich people I hate since I stopped working for the man.

Good luck, I hope your business goes well.

It's not even hard to make money in a business in america, its just a different mind set. Your basic job prospects in america are sloping downwards in pay and benefits, and getting taxed up upwards anyway so why continue being exploited? I chose to join the corporate side of the fence because thats where the money is.

Well, yes and no. The failure rate for small businesses in the US is high. I have read figures up to 80% and starting a business in a recession is a bold move. Obviously costs are minimised but revenue is hard to come by.



I still fundamentally disagree with your assertion that net worth is easy to calculate.

 

[MinnesotaBrant]

I wouldn't pay anything like 25%. Although my business is very profitable, I draw a comparatively small income from it. Your proposal only makes things even better for me.

I'd only be paying income tax at a marginal rate of 10% (as opposed to 25% now) and my business will be paying tax at 10% (as opposed to 35% now).

I'm exactly the sort of person who would do very well under your scheme.



Well it seems to be balanced towards the rich. After all I am comparatively well off and I'd be saving an absolute bundle,



I didn't challenge it because I have no idea what the current gross income is. This site suggests a little under 10 trillion but of course this includes ALL income, whether it is personal or corporate income whether it is earned or inherited.

There is an enormous difference between national Gross Income and the sum of the individuals' personal income.

For example, you are proposing taxing the transfer of property from spouse to spouse following that spouse's death (inheritance is included in Gross Income).

Corporate Gross Income also tends to overstate because it is calculated as sale price - cost of goods sold, it doesn't take into account other major costs (such as the cost of capital).



I was challenging one of your more remarkable proposals, that if someone didn't want to work (because taxes were too high) then their job should be given to the deserving poor



I was questioning whether someone off the unemployment line would have the skills to do that job. The reason that great paying jobs pay well is that there is a barrier to entry. This could be skills related (doctor, Pro-sportsman), contacts related (agent, salesman) or risk related (drugs dealer, hitman). It's a fallacy to assume that just anyone can do any job.



Getting anyone to pay taxes is a challenge. Getting the rich to pay taxes is more of a challenge.



Tax revenues by source are summarised here:

http://www.taxpolicycenter.org/briefing-book/background/numbers/revenue.cfm

Corporation tax provides 12% of federal tax income. Payroll taxes account for 36%. Here in the UK, the majority of payroll taxes are borne by the employer. i don't know what the breakdown is like in the US.

Corporation taxes are low in the US for a number of reasons including effective lobbying and a fear that high corporate taxes will curtail entrepreneurship.



Good luck, I hope your business goes well.



Well, yes and no. The failure rate for small businesses in the US is high. I have read figures up to 80% and starting a business in a recession is a bold move. Obviously costs are minimised but revenue is hard to come by.



I still fundamentally disagree with your assertion that net worth is easy to calculate.

Thanks for your interest in my idea. personal income tax and payroll tax are very simular so it looks like my 5 to 1 exstimate is likely correct. I suppose that capital gains are added into personal income and that is taxed at a different rate. In america the profits of most small corps are taxed as personal income. The difference is the amount of deductions a business is allowed to take. You are in briton so taxes are probably higher. Nope, I ran the numbers and this plan will bring in almost twice as much income. The only problem is the burden that would still be placed on the have nots. Therefore it might be good to give everyone who needs it a 15k per person deduction. You could always give a 200 dollar deduction for people needing to figure net worth out if they need it too. Something like what you need to give for a bancruptcy would be aducuate. This will rake in alot of money but would the rich stand for it? No.

 

[The Don]

The only problem is the burden that would still be placed on the have nots. Therefore it might be good to give everyone who needs it a 15k per person deduction. You could always give a 200 dollar deduction for people needing to figure net worth out if they need it too. Something like what you need to give for a bancruptcy would be aducuate. This will rake in alot of money but would the rich stand for it? No.[/QUOTE]

Thanks for your interest in my idea. personal income tax and payroll tax are very simular so it looks like my 5 to 1 exstimate is likely correct.

Please explain US payroll taxes to me. Please show that payroll taxes are borne solely by the employee. From wiki:

These taxes are imposed on employers and employees and on various compensation bases

..my bolding.. corporations pay more taxes than you believe.

I suppose that capital gains are added into personal income and that is taxed at a different rate. In america the profits of most small corps are taxed as personal income. The difference is the amount of deductions a business is allowed to take. You are in briton so taxes are probably higher.

I used United States figures to do my calculations to show that under your scheme I would be paying significantly less tax than I currently do. As a married man, my individual marginal tax rate would be more than halved, as would the corporate tax rate paid by my company.

There is typically a difference between income and capital gains taxes to promote people to invest and become entrepreneurs. Why should I retain money in a company and build it up when it'll be taxed as income.

Nope, I ran the numbers and this plan will bring in almost twice as much income.

Your estimate of the tax take is grossly inflated by the very loose definition of Gross Income (hint, it isn't just personal gross income). Personal income is certainly less than 50% of gross income.

So you're actually collecting less.

You also assume a 100% collection rate.

So you're actually collecting even less.

The only problem is the burden that would still be placed on the have nots. Therefore it might be good to give everyone who needs it a 15k per person deduction.

If you consider that 47% of people in the states pay no income tax currently, these are exactly the sort of people who would benefit from your deduction. Even though the amount of money you'd collect from each person would be comparatively small, with this deduction you'd be significantly reducing your tax take yet again.

You could always give a 200 dollar deduction for people needing to figure net worth out if they need it too.

Doesn't even begin to cover it that's a couple of hours (or less) of a good CPA. Are you suggesting that I engage someone to work out my net worth ? Guess what, I bet the answer will come out to my advantage.

Something like what you need to give for a bancruptcy would be aducuate. This will rake in alot of money but would the rich stand for it? No.

You do realise the amount of effort that goes into working out the financial situation in the case of a bankruptcy ? Tens, hundreds of hours


As you have pointed out, a flat tax system transfers the burden of taxation from the rich to the poor - which is why it is much-beloved of rich people.

 

[leftysergeant]

Taxing net worth is a stupid idea. It continues taxing those who have stopped earning money to provide services for and to regulate thoe activities of those who are still earning income.

The less net worth one has, the more this harms the retired or temporarilly unemployed aand those attempting to start a business.

In the worst case scenario, it continues taxing the home of a retired person to provide schools to train the wsorkers that the mega-rich need. It can tax a person who has worked hard and saved all his life and retired right out of his home to pay for schools to train the workers that the active entrepreneurs ned and the infrastructure that makes commerce possible.

There are only four sorts of taxes that I would call fair and equitable;

A graduated income tax,

Transportation and public safety taxes,

Nuisance taxes (as on drugs, alchol, tobacco and firearms,)

Financial instrument transfer taxes.

Of these, only the income tax should be assessed ad valorem. Transportation taxes could be based on fuel consumption and public safety taxes on the likelihood and probably expense, as determined by actuarial means, of providing such public safety services as fire and police coverage, water, sewr and waste disposal service. There is no reason that a retired person i a single-story cinder block house should have to pay a share of the cost of a schnorkel rig and a hazmat truct so that a factory can move into the boonies, away from other businesses that need the same sort of fire coverage. The nuisance taxes would need to be collected per unit. A Glock is not more likely to be involved in a shooting incident than is Hi-Point 9mm. A financial instruments tax, per transaction need not even be very high to fund an agency to guaranty that the instruments actually represent something of merit.

 

[MinnesotaBrant]

Taxing net worth is a stupid idea. It continues taxing those who have stopped earning money to provide services for and to regulate thoe activities of those who are still earning income.

The less net worth one has, the more this harms the retired or temporarilly unemployed aand those attempting to start a business.

In the worst case scenario, it continues taxing the home of a retired person to provide schools to train the wsorkers that the mega-rich need. It can tax a person who has worked hard and saved all his life and retired right out of his home to pay for schools to train the workers that the active entrepreneurs ned and the infrastructure that makes commerce possible.

There are only four sorts of taxes that I would call fair and equitable;

A graduated income tax,

Transportation and public safety taxes,

Nuisance taxes (as on drugs, alchol, tobacco and firearms,)

Financial instrument transfer taxes.

Of these, only the income tax should be assessed ad valorem. Transportation taxes could be based on fuel consumption and public safety taxes on the likelihood and probably expense, as determined by actuarial means, of providing such public safety services as fire and police coverage, water, sewr and waste disposal service. There is no reason that a retired person i a single-story cinder block house should have to pay a share of the cost of a schnorkel rig and a hazmat truct so that a factory can move into the boonies, away from other businesses that need the same sort of fire coverage. The nuisance taxes would need to be collected per unit. A Glock is not more likely to be involved in a shooting incident than is Hi-Point 9mm. A financial instruments tax, per transaction need not even be very high to fund an agency to guaranty that the instruments actually represent something of merit.

Well, I never before proposed a tax on net worth but now that I think about it, thats not a bad idea. It sounds very European. I have for instance heard a rich person brag that they could afford to run over a person with their if they like to as it only cost about a million or so. I hear that in France they tie how much you pay in fines to your net worth. I remember while working for the city directory talking to some rich Europeans living in a huge mansion near a lake. When I asked them how they wanted to be listed in the directory they stated unemployed and laughed. For sure they had the means to pay for something. I had only said that people with low net worth should have tax benefits but now that I think about it, why not tax net worth. There is more reward to taxing someone who has money than someone who doesn't. At least I think so anyway.

 

[leftysergeant]

A net worth tax and ad valorem property taxes keep taxing people for what they had done to earn their nest egg long after they have stopped earning income and consuming government services

Freaking stupid idea.

 

[MinnesotaBrant]

A net worth tax and ad valorem property taxes keep taxing people for what they had done to earn their nest egg long after they have stopped earning income and consuming government services

Freaking stupid idea.

Well, it couldn't be done under a democratic system. You would have to keep assets from leaving the country and give broad police powers to seize property and grab money. I estimate that you could triple tax revenue while not damaging the economy. We could pay off the debt in 20 years. We already have the patriot act so it could be done.

I pretty much was advocating the elimination of deductions for certain people with high net worth while probably lowering their tax rate. I don't know, you seem to think that people with high net worth should be able to send their parents to nursing homes etc, on the public dime but I don't. My plan could pay off the debt in 30 years and probably would significantly improve to economy. Of course in America raising taxes is difficult and it looks like the Dems want to tax our way out of the debt and the Reps want to default. What about my plan is stupid. I have no reason to lie since I am not running for anything and probably couldn't considering my mental health issues.

 

[The Don]

Well, it couldn't be done under a democratic system. You would have to keep assets from leaving the country and give broad police powers to seize property and grab money. I estimate that you could triple tax revenue while not damaging the economy. We could pay off the debt in 20 years. We already have the patriot act so it could be done.

I pretty much was advocating the elimination of deductions for certain people with high net worth while probably lowering their tax rate. I don't know, you seem to think that people with high net worth should be able to send their parents to nursing homes etc, on the public dime but I don't. My plan could pay off the debt in 30 years and probably would significantly improve to economy. Of course in America raising taxes is difficult and it looks like the Dems want to tax our way out of the debt and the Reps want to default. What about my plan is stupid. I have no reason to lie since I am not running for anything and probably couldn't considering my mental health issues.

The maths simply do not work in "your" plan.

I've tried to point out how taxing Gross Income involves multiple counting of actual personal income. I've tried to point out how "your" plan will result in lower overall receipts and a transfer of the tax burden from the rich to the less well off.

The reason why rich people are so keen on flat tax proposals like this one is that they will end up paying considerably less tax than they currently do.

Basing deductions on net worth may or may not be a good idea (it will hit the asset-rich, cash poor particularly hard) but implementing it will be very difficult indeed. determining net worth is very difficult and requires intrusive investigation into someone's finances. If the plan were implemented an entire industry will spring up around disguising net worth - something which wouldn't add much value to the economy as a whole.

By all means attempt to encourage the rich to pay a greater proportion of taxes. There are many ways you can attempt to do this rather than reducing their tax rates. They could include:

• Increasing the marginal tax rate for high earners - been done recently in the UK, a lot of squealing and the poeple who have avoided paying tax will probably continue to do so
• Taxing financial transactions. This would hit everyone but the rich MAY engage in a greater proportion of financial transations. An example is stamp duty in the UK where the more expensive house you buy, the greater the rate you pay stamp duty at
• Introduce a luxury tax on certain high-value goods - will result in smuggling
• Try to clamp down on tax loopholes. Clamping down on a loophole often results in two more loopholes

Trying to get the rich to pay more tax is difficult. Rich people (indeed everybody) don't want to pay taxes unnecessarily. Rich people have the resources to fully exploit the tax avoidance opportunities offered by the current tax codes.

 

[Ladewig]

What about my plan is stupid.

I'm a little confused at this point. Leftysergeant went into great detail as to why he thinks your plan is unfair and somewhat arbitrary. The Don went into detail about why the plan is impractical and will not generate the numbers you assert. Why are you asking for them to provide reason why they think your plan is stupid? They have already supplied these reasons.

 

[Ladewig]

I don't know, you seem to think that people with high net worth should be able to send their parents to nursing homes etc, on the public dime but I don't.

You seem to think that this problem is wide-spread enough to rewrite the tax code and change the way taxes are collected - broad police powers to seize property? Really?

So when you suggest taxing net worth, are you of the opinion that people will have no desire to resort to legal, semi-legal, and illegal means to hide their net worth or are of you of the opinion that these efforts will be no match for the investigative arm of the tax police? How big will this tax police force be? Will it be bigger than the underground economy that will rise up in such a situation?

Currently people take the savings they hope to use in the future and a put it in savings accounts, CDs, IRAs, stocks, bonds (federal and otherwise), and real estate. All those things are quite trackable. Won't your plan encourage people to hide money in their mattresses (creating quite a drag on the economy)?

 

[MinnesotaBrant]

I will just work the numbers again rather than answer alot of questions. the total amount of income from personal income tax is about 12 trillion dollars. Lets go see how much of that the top 25% of wage earners gets. Look I found a chart fun!

WHAT THE TOP 1%, 5%, 10%, 25% and 50% MAKE IN AMERICA

Based on the Internal Revenue Service’s 2010 database below, here’s how much the top Americans make:

Top 1%: $380,354

Top 5%: $159,619

Top 10%: $113,799

Top 25%: $67,280

Top 50%: >$33,048

SUMMARY OF FEDERAL INDIVIDUAL INCOME TAX DATA, 2010

looks like the top 25% make at least 68k a year each for a total of 22 trillion. lets give them 1 billion in deductions. looks like we could make 5.25 trillion right there. Who said that I was not a mother **********? I forget. Fine, take 250 billion from the next 25% and lets stop right there. 550 trillion. Can any of you add? Anybody work for the govt drooling right now?

 

[The Don]

I will just work the numbers again rather than answer alot of questions. the total amount of income from personal income tax is about 12 trillion dollars. Lets go see how much of that the top 25% of wage earners gets. Look I found a chart fun!

WHAT THE TOP 1%, 5%, 10%, 25% and 50% MAKE IN AMERICA

Based on the Internal Revenue Service’s 2010 database below, here’s how much the top Americans make:

Top 1%: $380,354

Top 5%: $159,619

Top 10%: $113,799

Top 25%: $67,280

Top 50%: >$33,048

SUMMARY OF FEDERAL INDIVIDUAL INCOME TAX DATA, 2010


[qimg]http://cdn.financialsamurai.com/wp-content/uploads/2011/04/toptaxes.jpg[/qimg]

looks like the top 25% make at least 68k a year each for a total of 22 trillion. lets give them 1 billion in deductions. looks like we could make 5.25 trillion right there. Who said that I was not a mother **********? I forget. Fine, take 250 billion from the next 25% and lets stop right there. 550 trillion. Can any of you add? Anybody work for the govt drooling right now?

I think your maths are faulty...

• Gross Income (if that's what AGI is) for the top 25% is $5.7 Trillion, not the 22 Trillion you claim. Your figures are out by a factor of 4
• Income tax would only be paid on marginal income above a certain level. So If I $50,001 and the threshold for 25% is $50,000, I only pay 25% on $1, not all $50,001 (otherwise I'd be much worse off if I earn $50,001 than if I earn $49,999. You do not seem to have assumed this
• You were considering household income so even if I earn more than the 25% threshold, if my joint income with my wife is less than double the 25% threshold I would pay only at the lower rate. Your figures do not take this into account

The figures provided show that you wouldn't increase the tax take significantly with your numbers. For example:

Person A earns just over the top 5% threshold. Person A's spouse earns very little therefore the income for the Person A household is $160,000

They would (under your plan) pay 10% on the first $100,000 - $10,000
They would (under your plan) pay 25% on the next $60,000 - $15,000

Their total tax would be $25,000, just under 16%
Currently they pay at over 20% - they pay less tax

Person B earns just over the top 5% threshold. Person B's spouse earns nothing therefore the income for the Person B household is $160,000

They would (under your plan) pay 10% on the first $50,000 - $5,000
They would (under your plan) pay 25% on the next $110,000 - $27,500

Their total tax would be $32,500, almost exactly what they currently pay AND they have been penalised for having a stay at home Mom/Dad



I fail to see where all this extra tax will come from

550 trillion. Can any of you add?

Your wilful disregard for numbers leads me to believe that you're now just trolling

 

[MinnesotaBrant]

Nope actually you proved my main figures. 1.5 trillion tax revenue for the top 25% of wage earners and 400 billion for the rest; almost double the revenues. Debt would be paid in 30 years. You should actually run the numbers before you decide I am either being too strict or not strict enough. actually the cut off is 67k not 50k. If you take in net worth into the equation you could come up with 400 billion easy. The only thing it doesnt take into account is people with money and assets who use the system and don't pay for it because they are not earning anything.

I took 25% of 5.7 trillion and rounded up. 10% tax for 66k and down with 15k deduction; except those who have decent net worth wouldn't get any deduction; 400 billion easy. If they wanted a deduction they would have to report assets similar to what you report in a bankruptcy. Give a 200$ credit to people who don't have the assets to afford the paperwork. Seems like the debt would be paid and the economy would go though the roof since there would be money to build infrastructure.

 

[The Don]

Nope actually you proved my main figures. 1.5 trillion tax revenue for the top 25% of wage earners and 400 billion for the rest; almost double the revenues. Debt would be paid in 30 years. You should actually run the numbers before you decide I am either being too strict or not strict enough. actually the cut off is 67k not 50k. If you take in net worth into the equation you could come up with 400 billion easy. The only thing it doesnt take into account is people with money and assets who use the system and don't pay for it because they are not earning anything.

I took 25% of 5.7 trillion and rounded up. 10% tax for 66k and down with 15k deduction; except those who have decent net worth wouldn't get any deduction; 400 billion easy. If they wanted a deduction they would have to report assets similar to what you report in a bankruptcy. Give a 200$ credit to people who don't have the assets to afford the paperwork. Seems like the debt would be paid and the economy would go though the roof since there would be money to build infrastructure.

You clearly do not realise how marginal tax rates work. I will attempt to educate you.

When you say, above $50,000 - 25%, below $50,000 10% I think that you are proposing that if you earn over $50,000 then all your income is taxed at 25%. You could do this, but you'd find that people would either earn $49,999 or less or more than $57,500 because in between these two figures you'd actually be worse off. You've also forgotten your proposal to pool allowances so that two earners in a household could total up to $100,000 before paying at the higher rate (unless you are going to change this).

Now if your proposal is to tax at 25% all income for people who earn more than $50,000 then what you are proposing is a 60% tax raise for the middle classes and no significant change for the truly wealthy.

But lets' run the maths......

Example 1: $15k deduction, graduated tax.

I earn $70,000
I pay no tax on the first $15,000
I pay tax at 10% on the next $50,000 = $5,000
I pay tax at 25% on the remaining $5,000 = $1,250
Total tax = $6,250 - under 10%, significantly less than now

Example 2: $15k deduction, no graduation.

I earn $70,000
I pay no tax on the first $15,000
I pay tax at 25% on the remaining $55,000 = $13,750
Total tax = $13,750 - around 20%, a 30% increase (meanwhile Mr Moneybags who earns $millions has his tax bill increase by less than 10%)

Example 3: No deduction, no graduation.

I earn $70,000
I pay tax at 25% on all the $70,000 = $17,500
Total tax = $17,500 - 25%, a 60% increase (meanwhile Mr Moneybags who earns $millions has his tax bill increase by less than 10%)

So either the tax take will be lower (if a graduated tax is applied) or the tax take will be higher but the tax burden will be shifted unfairly to the middle classes whereas the truly well off have a tiny increase in their taxes.

The consequence of this huge increase in taxation would be that the middle classes, the ones who are responsible for a lot of the discretionary spending, would have to trim their budgets significantly elsewhere. There would be a significant decrease in spending, the economy would take a nosedive.

The same problem applies at the lower income levels:

Example 4: $15k deduction

I earn $40,000
I pay no tax on the first $15,000
I pay tax at 10% on the remaining $25,000 = $2,500
Total tax = $2,500 - around 6%, half my current taxation rate of 13%

Example 5: No deduction, no graduation.

I earn $40,000
I pay tax at 10% on all the $40,000 = $4,000
Total tax = $40,000 - 10%, still significantly lower

So the people in the range $30,000 --> $65,000 will end up paying significantly less tax whether they qualify for the deduction or not. How does that increase your tax take ?




As an aside....

The $200 wouldn't even come close to the fees required to determine net worth. Bankruptcy audits costs thousands, tens of thousands of dollars. You'd be establishing a whole new, non-value added industry of hiding net worth and an intrusive bureaucracy of attempting to disclose net worth. Basing the deductions on net worth would be impossible to implement and political suicide (farmers who are cash poor but asset rich would be a good example of a group who would be unfairly punished by your scheme.

 

[MinnesotaBrant]

I earn $70,000
I pay tax at 25% on all the $70,000 = $17,500
Total tax = $17,500 - 25%, a 60% increase (meanwhile Mr Moneybags who earns $millions has his tax bill increase by less than 10%)

Well thats 70k for one person. if two people were living off of that then it would be 10%. You do relize that the gross income in the chart is the adjusted gross income? The person with the agi of 70k is actually making more?

 

[The Don]

I earn $70,000
I pay tax at 25% on all the $70,000 = $17,500
Total tax = $17,500 - 25%, a 60% increase (meanwhile Mr Moneybags who earns $millions has his tax bill increase by less than 10%)

Well thats 70k for one person. if two people were living off of that then it would be 10%. You do relize that the gross income in the chart is the adjusted gross income? The person with the agi of 70k is actually making more?

In which case I pay less tax and the tax take goes down.

Either way the plan does not work. The only way to further shift the burden of income taxation to the rich is to increase (rather than decrease) the marginal rate at which they pay income tax. That of course increases the benefits of tax avoidance and can have the effect of actually lowering the tax take.

In any case, please respond to my point about whether the 25% applies to income above $50,000 (or $65,000 if the deduction applies) or whether it applies to all income (in which case it creates a serious anomaly where a person earning just over $50,000 (or $65,000 if the deduction applies) takes home significantly less than someone earning just less than $50,000 (or $65,000 if the deduction applies).

 

[MinnesotaBrant]

http://cdn.financialsamurai.com/wp-content/uploads/2011/04/toptaxes.jpg\

Look carefully at the above tax rate. The highest effective tax rate for the top 1% is 23%. You are a liberal arguing against a tax increase. I am sure that you can do a better job than me and I give you permission to tinker with it. A couple with low net worth making 70k jointly would pay 4k. The same couple with a high net worth would pay 7k. If you could find someone making 70k with low net worth. (maybe he likes to gamble), he would pay 13,750 in taxes. 70k is alot of money, I am sure he wouldn't go broke. The same high net worth person would pay 28k. Since he is not needing the money to live on I am sure he will afford it. I am not liberal enough to give a deduction to kids though. Did I already mention that you are a liberal arguing against higher taxes in order to pay off the debt already?

 

[The Don]

http://cdn.financialsamurai.com/wp-content/uploads/2011/04/toptaxes.jpg\

[qimg]http://cdn.financialsamurai.com/wp-content/uploads/2011/04/toptaxes.jpg[/qimg]
Look carefully at the above tax rate. The highest effective tax rate for the top 1% is 23%. You are a liberal arguing against a tax increase. I am sure that you can do a better job than me and I give you permission to tinker with it. A couple with low net worth making 70k jointly would pay 4k. The same couple with a high net worth would pay 7k. If you could find someone making 70k with low net worth. (maybe he likes to gamble), he would pay 13,750 in taxes. 70k is alot of money, I am sure he wouldn't go broke. The same high net worth person would pay 28k. Since he is not needing the money to live on I am sure he will afford it. I am not liberal enough to give a deduction to kids though. Did I already mention that you are a liberal arguing against higher taxes in order to pay off the debt already?

I am arguing against a bunch of things:

• That your maths is way off
• That your maths is even wayer off UNLESS you are proposing that the 25% tax rate is not a marginal rate (in which case it creates a large disincentive to earn between $50,000 and $60,000
• If you want to increase tax take then the only way you can do it in your plan is to SIGNIFICANTLY increase the tax rate for low and middle earners and to marginally increase the tax rate on high earners - although as I said above, the maths in your plan don't stack up
• Determining deductions based on net worth is too difficult to implement. When this kind of "means test" was applied in the UK it was hated as being intrusive

At no point did I say I wanted high earners to pay less tax, just that it would be an inevitable consequence of your plan.

If there is a need to raise more money in Federal Income Tax then a way of doing this would be to repeal the Bush tax cuts and increase the marginal tax rates for high and medium high earners. I would propose this kind of thing AND additional measures.

The maximum level of marginal tax in the UK is 50% for all earnings above £150,000. When this was introduced there was squealing but the sky did not fall in.

leftysergeant has identified a range of other taxes. I personally favour higher "sin" taxes on alcohol, tobacco and luxury goods and a higher financial transfer tax (like stamp duty in the UK).

But the basic flaw with your plan is that the maths simply does not add up. Arguing about the margins is like discussing exactly what kind of chocolate is best for making a teapot.