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Do rich people need tax relief?

Wash Post-er E.J. Dionne's column today calls attention to some data that, while not really surprising to those who have been paying attention, are nonetheless powerful testimony to the disconnect between the facts and the arguments in contemporary American politics. To wit:

"The simple truth is that the wealthy in the United States -- the people who have made almost all the income gains in recent years -- are undertaxed compared with everyone else.

Consider two reports from the Center on Budget and Policy Priorities. One, issued last month, highlighted findings from the Congressional Budget Office showing that 'the gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007.'

The other, from February, used Internal Revenue Service data to show that the effective federal income tax rate for the 400 taxpayers with the very highest incomes declined by nearly half in just over a decade, even as their pre-tax incomes have grown five times larger.

The study found that the top 400 households 'paid 16.6 percent of their income in federal individual income taxes in 2007, down from 30 percent in 1995.' We are talking here about truly rich people. Using 2007 dollars, it took an adjusted gross income of at least $35 million to make the top 400 in 1992, and $139 million in 2007."

Dionne thinks the Dems are nuts if they don't make a big deal of Repub efforts to save the richest Americans from paying the same income tax rates as they paid in 2000, in other words to preserve the portion of the Bush tax cuts that apply to those with quarter million annual incomes and up.

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Comments (39)

Mr. Black,

I am glad you support the "tax and spend" policies of the Democrats.

So which "Tax and Spend" DFL governor candidate do you support?

DFL "tax and spend" as opposed to the Republican "borrow and spend?" I'll take the first option.

The Dems are nuts; they're also apparently afraid to talk to voters like adults and challenge the something-for-nothing policies of the GOP that any rational person can see just plain flat don't work.

Mr Gotzman

The question has never been if to tax and spend or not. It has always been how much and where.

I am less concerned with just what the top income rate ends up at, then with how the underlying sources of income are treated differently.

Where in the piece does Mr. Black provide his personal support for Democratic policies that Mr. Gotzman calls "tax and spend"?

Of all the bloggers around, Mr. Black is among the most neutral and even-handed. Many times i can't figure what his personal take is. In this article, all i was able to find was his report on Dionne's piece, which cited data about relative tax burdens.

Aside -- government, to function, has to raise revenue - honest people call those taxes, not fees and other b.s. - so government can spend that revenue to provide needed services, like police, fire, education .. on a national level, our national defense, etc.

the idea that one party is defined by taxing and spending - when that is an essential part of governing - is about as useful as declaring a war on terror. both are habits of Republicans that have not helped the quality of political conversation in the United States.

Mr Gotzman, my father who was well versed in the bible as you are probably also, was much much more concerned with the immorality of gambling. How come we never ever hear a peep from you on this topic? You seem to be a johnny one note lately but than thats probably my problem.

Federal taxes as a share of GDP are at their lowest level in two or more generations—14.9% versus a postwar average of 18.2%. There is not one bit of evidence that the economy is suffering from excessive taxation and no evidence that the sorts of tax cuts favored by Republicans—mainly tax cuts for the wealthy—would do any good given the nature of the economy’s problems.

The key area where conservatives continue to live in denial relates to the inevitability of higher taxes to the long-run solution to our fiscal problem. At present, they believe that massive spending cuts that don’t hurt average Americans are the only solution to the deficit that they will agree to. At some point, they will realize that this is simply not possible and that tax increases are not the worst thing in the world—Ronald Reagan raised taxes 11 times, including in 1982 when the economy was still in recession, and contrary to conservative predictions Bill Clinton’s 1993 tax increase did not send the economy into a tailspin.

Unfortunately, Reagan and Clinton and this obsession with minimizing the taxes on the most well off with low capital gains and maximum marginal rates, while maximizing the taxes on the middle and working classes, by rasins SSI and Medicare taxes, not only set the stage for the rape (and I don't use the word lightly) of the middle class and recurring "bubbles." Reagan, Clinton and Greenspan ginned up the economy with deregulation/easy credit and a massive reallignment of wealth to the top. All that unnecessary money in the hands of the wealthy had to go somewhere, so the banksters obliged by creating murkier and murkier financial "instruments." REPEAL THE REAGAN TAX CUTS!! ABOLISH PREFERENTIAL TREATMENT FOR SHORT TERM CAPITAL GAINS! If we did those two things, we'd be a long way towards fixing the mess the GOP and GOP-lite DLC got us into.

The pro rich commentators usually talk about the nominal marginal interest rates, which appear to show that the rich pay high taxes.
However, when you look at total taxes paid relative to total income, the rich pay less than the middle class (and corporations even less -- some of them actually get rebates).

If it were politically possible to eliminate tax loop holes (even something as moderate as a cap on mortgage deductions so a six million dollar house wouldn't produce a major income tax deduction) we wouldn't have to change the overall rate structure.
We could also treat Wall Street bonuses as earned income rather than capital gains.

Since it is easier to slide in exemptions for special interests rather than killing a bill outright, simply letting the Bush tax deductions expire (which would return us to the Reagan tax increases) is the most likely solution.

The most egregious problem with the Bush tax cuts is the capital gains tax rate. It is outrageously low, and it applies to activities that do not encourage economic growth. As Warren Buffett noted, it allows billionaires to pay taxes at half the rate of working people.

In particular, buying and selling stock on the stock market does not encourage corporate investment in new infrastructure, new products and new hiring.

Low capital gains tax rates should apply only to investments that directly generate new jobs and new investment. Day traders flipping stocks do not create new wealth. They only promote a casino mentality and puts pressure on CEOs to make decisions that increase the stock price in the short term that often harm the corporation in the long term.

Taxes should be low on new investment in companies developing new clean energy technology, expanding exports, hiring Americans at home, etc.

Tax policy should encourage investments that benefit the majority of citizens, not day traders who think they have the inside scoop on the latest corporate merger.

All the tax talk from photographers and tax-exempt employees, how could anyone disagree. Maybe the top earners receive preferential tax treatment because the investing activities for which they engaged produce an outcome that will benefit all participants in the economy. Why in world would we dream of doing anything that would reduce capital flow into stock and credit markets at this point. We are not even two years remove the biggest credit squeeze in generations. In the last year the US government has added two bill with 5000+ pages of legislation will do nothing more than limit new participation into the US economy. Couple that with a capital gains increase and why would anyone invest in US venture project or entrepreneurship.

Will a new business cost more to start, YES.

Will the new business have higher operating costs, YES.

Will I receive as much benefit for the risk when I realized the gain, NO.

#10 Really? - Day Traders flipping stocks produces Short Term Gains and Losses taxed at ordinary rates.

What was that old Nat King Cole song? ..."Our Love Is Here To Stay"?

So Republicans' obsession with their tax relief for the rich comes out thus:

"It's very clear
Our [tax] is here to stay
Not for a year
But ever and a day..."

And of-course they don't care if, in time, this country crumbles and we all tumble in the process!

On: "The simple truth is that the wealthy in the United States -- the people who have made almost all the income gains in recent years -- are undertaxed compared with everyone else”

>Or, put another way, one could say that “everyone else” is overtaxed compared to the wealthy. This becomes more difficult to sustain, however, when nearly half of “taxpayers” now pay no tax at all except for social security and medicare deductions if employed.

It is problematic to me to declare that ANYONE is “undertaxed.”

The real question should be “what is the proper AMOUNT of all the goods and services produced by the nation that should be appropriated by the federal, state, county, and local governments for the services they provide, and what are the services that they SHOULD provide.

For those who believe that government has grown like topsy, feeding upon itself to increase the numbers of employees and other beneficiaries thus made beholden to it at the expense of the citizenry, it seems preferable to take the position that ALL of us are overtaxed.

It may be that some are overtaxed more than others (see comment below). But claims such as the one adduced by this writer are doomed to fall on deaf ears for those who do not believe present government programs are all relevant, efficient, honest, and successful and in need of continued funding at current and even greater expenditure levels.

On: 'the gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007.

>To avoid being an example of how to lie with statistics, it might be better to compare as follows:
a) the gaps between the upper 50% of Americans and lower 50%; or
b) the gaps between the middle fifth and the upper fifth; or
c) the gaps between the middle and poorest fifths.

While I suspect that even these measures might suggest worrisome trends, they would not – I am certain – be of the magnitude this highly selective and distorting measure suggests.

It may be that while those who believe in the discredited saying “from each according to his ability and to each according to his needs” would find ANY disparities outrageous.

For most Americans from the beginning until now, however, the idea that one can better oneself by studious contribution to the common good has been the controlling ideology.

Most Americans do not begrudge the doctor receiving greater financial rewards than the dropout.

To suggest that successful economic endeavor should be met with effort discouraging and punitive taxation does not fit weill with the prevailing ideology.

On: “the effective federal income tax rate for the 400 taxpayers with the very highest incomes declined by nearly half in just over a decade, even as their pre-tax incomes have grown five times larger.

>I submit that this means the top 400 taxpayers are paying significantly more taxes than they did a decade ago, because if they were paying the same amount of taxes while their income increased five fold their tax rate would have declined by 80%, not 50%.

Those who know these things know that the upper 50% of our income earners pay nearly all of the personal income taxes the government receives already, and I believe the upper 10% pay nearly half of that total.

Not being one of them, or ever hoping to be, I don’t full grasp how they do it, but I do know that I would rather have them deciding how to invest their dollars to make life better for the rest of us with new ideas, new projects, and new jobs than have the government take those dollars for it’s often wasteful and useless “investments.”

This because while “the wealthy” do not have spotless reputations, what they have done to build this greatest economy on the face of the earth certainly far outshines anything I have seen come from government at any level.

In sum, it seems to me that to attempt to promote higher and higher taxes by fomenting jealousy of those in our society who have done well economically is a bitter and misplaced attempt to put one citizen against another.

“Hate your brother” may win votes, but at the expense of us all.

I favor legislation to curb excesses and abuses by those who have means, and to help those who labor at the lower ends of the economy to have “a fair shake” and fair value for the contribution they make, and to help those amongst who truly cannot fend for themselves.

I am opposed to the idea that governments – famous only for making war (though wastefully as usual) – should fund their programs designed to win voters at the expense of those who have managed to become successful in spite of them, or at the expense of the rest of us for that matter.

There is no economic or policy reason why government should be kept at levels that
existed when people relied far less on Medicare, Social Security or other public goods and services that are a vital part of our lives today.

Shouldn’t we simply ask what important services we believe government provides
efficiently and then determine how should we pay for them? Anyone who studies Social
Security knows that it would be very difficult to get the private market to provide the package of retirement benefits, disability benefits and death benefits that the program provides.

Anyone who studies Medicare knows that its administrative costs are lower than those of
private insurance. Most people would agree that federal funding for education helps create a more productive workforce than we would have if the federal government left its hands off education entirely. The list goes on and on.

Americans want their government to provide certain things. It makes no sense to start from the assumption that we must keep the government at some particular size because that’s the way it was in previous decades.

Whew.

That was a looong wind breaker of a comment, Mr. Lacono!

Hope you are still breathing.

The tax incidence study provides accurate information, there is no such thing as "tax free" low income people:

http://www.taxes.state.mn.us/legal_policy/other_supporting_content/2009_...

Let's take a step back and look at a bigger picture, instead of trying to obscure that picture with statistical smoke screens:

When looked at on a global scale, the fastest growing economies in the world are all located outside the United States - most outside our hemisphere. A HUGE amount of that growth is fueled by investments made by America's wealthiest citizens. Meanwhile, America struggles to find jobs for those left unemployed by the ending Great Recession.

Clearly US tax policy has had a great deal to do with why wealthy people are taking advantage of the Bush tax cuts, cuts which they promised would "create more jobs" to create those jobs every where in the world BUT the US.

It's time, not only to end those tax cuts, but to offer tax incentives for those who DO invest in the American economy and American workers and American factories. If this violates any of our much-vaunted "trade agreements" we should opt out of those agreements. For the most part they only seem to free up the wealthiest among us to send their dollars and the jobs they create off shore, thereby impoverishing their fellow citizens while further enriching the already wealthy.

Current tax and economic policy leaves America in the unenviable position of being a nation of the wealthy, run by the wealthy, for the purpose of increasing the wealth of the wealthy. If we don't make major changes soon, the US will collapse under the weight of the rest of the population trying to hold up the very few carrying all that wealth.

I've sometimes agreed with Mr. Iacono in the past, but not this time.

Do rich people need tax relief?

No.

More to Mr. Iacono’s point, are we overtaxed by the federal government?

No.

According to the U.S. Bureau of Economic Analysis, Americans collectively paid just 17 percent of their personal income in taxes last year. Even if that figure doesn't include state and local taxes, and I suspect it does not, it still represents a figure not seen in nearly 40 years (1971 was the last year it was such a low percentage).

Add to that Mr. Dionne's figures, and it seems plain – to those of us in the reality-based universe, at least – that the wealthy neither need nor, dare I say, deserve, any sort of tax relief.

I don’t enjoy paying taxes any more than Tom Emmer or Michele Bachmann, but it’s my view that taxes are the price we pay for civilization. As such, it seems to me only fair that those who benefit the most from that civilization, most obviously in the form of wealth, ought to contribute their fair share to maintain the civilization from which they have benefited so generously.

Small government advocates (I very much like Richard Schulze's first comment about the size of government) might take note that, if there's been dramatic growth in taxes and fees, that growth has come at precisely the level(s) of government where one would expect individual citizens to have the most influence – at the state and local level. A good case could be made that those state and local tax increases are largely because federal revenue and revenue-sharing have declined substantially – largely due to individual and corporate tax cuts at the federal level.

Having just moved to the Twin Cities from Denver a year ago, I can tell you that my income taxes in Minnesota are three times as high as they were in Colorado for the exact same income. That ought to put me in the poorhouse, but because housing, food and other expenses are lower here than in Colorado, my modest standard of living remains… modest, not poverty-stricken.

I’d love to have all the benefits of modern industrial society without having to pay for them, but – as my Republican acquaintances used to tell me in high school, but have apparently forgotten in the decades since – there ain’t no such thing as a free lunch.

Somebody mentioned reality.

Well the reality is that the very wealthy cannot, in good conscience, expect to go on getting tax cuts forever. Some people have argued here as if tax cuts are a God-given right or reward for hard work and that they eventually stimulate the economy toward further wealth. This is pure bunk! The rich are either hanging on to their wealth or are investing in foreign lands. The wealth made there from cheap or slave labor does return here only to be rewarded with tax cuts. Meanwhile, unemployment is at record levels here, and recession is already a reality.

Local businesses (service and manufacturing) should indeed be encouraged with tax incentives as long as they are reinvesting in the economy and not giving payouts in the form of fat and undeserved bonuses and perks to (rich) executives.

"Do rich people need tax relief?" ... No, they don't. The relief they have gotten over the last eight years or so should more than sustain them for the rest of their lives.

My answer to the ink-stained wretch's question is: no, the rich don't need tax relief. People who live in Minnetonka or Woodbury in a $400,000 house, have two or three cars, a couple of flat screened TVs' etc. have no business complaining about taxes. They have no business complaining about anything. They ought to be on their knees every day thanking God for their many gifts. Nobody "deserves" to be rich or poor.

I'd like to ban that phrase "tax relief" for another generation because it's acquired such a foul smell. The right has made such a fetish of taxes (or complaining about them) that we've lost the ability to have a rational discussion on the subject of funding government. Many of us who are lucky enough to be working or earning money in some sense are also still paying taxes and that's not going to end any time soon, (God willing).

One could write a book about taxes and tax policy, so I'm going to just make a couple of points. First, the progressive income tax as it's known was not made up by a bunch of commie progressives or radical redistributionists. Adam Smith was a proponent of progressive taxation.

Second, taxation and progressive income taxation did not become much of an issue until the country went through the terrible inflation in the 1970's and 1980's and people who previously had comfortable incomes but could file a simple return were indexed in increasingly higher brackets. Everything went out of whack after Vietnam and the oil embargoes. Everybody knows someone who bought their house for $10,000 and sold it for $500,000 (or something like that). It was logical and reasonable to do something about this. Gutting social services and destroying the safety net for the less well off was not and still is not the answer. Not when we have a defense budget 25 times any other nation in the rest of the world and not even Congress really knows how big it is.

So, a good beginning would be letting the Bush tax cuts for the wealthy expire, including reinstatement of the estate tax.

Taxing income always was a bad idea, and it still is. Income, especially hard-earned income, is a good thing and should never be discouraged. We should instead tax the consumption of goods and services with negative externalities and high social costs.

The US was not nearly overtaxed in 2000, when we were talking of paying off the entire debt. We ought to get back to the Reagan equality of all income. Cutting capital gains rates below other income makes tax shelters attractive and encourages the casino.

There ought to be a clever way to provide relief for those who have created something new through years of effort. Double taxation of dividends ought to be avoided by making them tax-free at the corporate, not the individual, level. This would help to eliminate the tax bias in favor of debt over equity financing, and make slowdowns less dangerous as equity regains a larger share of capital.

Read carefully, my post #14 makes only a few points:

>Buttressing the argument for increasing taxes on "the rich" by the use of selective statistics which actually distort the picture is not good.

>Without consideration as to whether taxes are well and appropriately spent, answering the posted question is premature.

>Suggesting the rich do not pay "their fair share" ignores the fact that they already pay a greater share in absolute terms than most of us do.

As we all know (or should know) tax rates are already significantly progressive at both the federal and state levels. And various deductions commonly shared reduce taxes on nearly half of us to zero or near zero levels.

Those who complain about the wealthy moving wealth out of the country might well consider whether CURRENT tax rates do not encourage that, and whether HIGHER rates would not simply accelerate it before leaping off the cliff.

When the game is stacked against one team by the referees, it is only a matter of time before the persecuted team folds up its tent ant leaves.

It behooves us to be careful what we wish for.

Apologies for the lengthy post, by the way: I got bogged down in the details.

Richard--
The problem with "Double taxation of dividends ought to be avoided by making them tax-free at the corporate, not the individual, level" is that the rich (and not only the very rich) simply set up a family corporation and take their income in the form of dividends.
ALL income is subject to multiplier effects -- the dividends/capital gains claim is a boojum.

The real trick (which I think that you tried to address) is to set up a progressive tax system involving something other than an income tax.

And an aside:
The claim that many poor people pay no income tax is true only in a literal sense; they DO pay payroll tax. When you take this into account, the picture is very different.

(#17) Guernsey says: "
The tax incidence study provides accurate information, there is no such thing as "tax free" low income people:"

Agreed. The study you refer to, however, addresses Minnesota income and PROPERTY taxes combined. It does not address the federal tax system.

I was contemplating the Federal income tax system.

Apparently clarification is needed:

Everyone pays sales taxes.

Every wage earner pays FICA and Medicare taxes.

Everyone who owns a home pays property taxes, and renters pay them through their rent payments.

Some lower wage earners who pay no federal income taxes do pay state income taxes.

But nearly half of the population pays NO federal income taxes. The rest of us pay for them, and even subsidize them through refundable credits such as the earned income credit.

There. Hope that clarifies some of this discussion.

The top federal income tax rates through the decades:

2001-10 35.7%
1991-00 37.8%
1981-90 44.3%
1971-80 70%
1961-70 77%
1951-60 91%
1941-50 89.9%
1931-40 67.2%
1921-30 38.5%
1913-20 40.8%

(from taxfoundation.org)

Check out this site and see compare it to historical events. One thing that comes to mind is the absence of credit card wars. Lyndon Johnson was critizied for his "guns and butter" war for cutting the top rate from 91% to 77%. The rates in the 1920's leading to the great crash were 25%.

The current top federal income tax rates are lower now then they have been since 1931.

I'd really like to see the re-examination of some of the basic features of our tax system:

1. Why should we tax capital gains and dividends at a lower rate than ordinary income?
2. If there are valid reasons for taxing capital gains and dividends at a lower rate, why do we tax them at an essentially flat rate rather than the steeply progressive rate at which we tax ordinary income?
3. If we are going to have a progressive income tax rate structure, why should the top rate kick in at only around $370k per year? Should an individual making $400k per year and an individual making $400 million per year face the same top marginal rate?
4. Why do we allow so many distortionary deductions, such as the home mortgage interest deduction?
5. Why do we have a separate estate tax, instead of just taxing inheritances as income to the recipient?

Broadly, I'd like to see the following:

1. Abolish the corporate income tax. This would get rid of the perverse incentive that encourages debt over equity financing for corporations in a way that eliminating dividend taxes for individuals does not. It would also eliminate quite a bit of unproductive activity where US corporations route transactions around the world to be able to take profits in low tax rate jurisdictions.
2. Tax dividend income as regular income, subject to the same progressive rates as ordinary income. Since the corporate income tax has been abolished, there can be no whining about double taxation of income.
3. Tax capital gains as ordinary income, with the basis adjusted for inflation over the period the asset is held.
4. Eliminate the vast majority of deductions, including the one for home mortgage interest. Increase the standard deduction somewhat.
5. Replace the estate tax by simply taxing inheritances as ordinary income, perhaps with some sort of allowance to prevent having to sell-off family businesses and farms.
6. Add another tax bracket somewhere above the current top bracket but below $1 million. This bracket would be an increase of a couple of percent over the current top rate. Add a second bracket at an income level somewhere between $2-$3 million, this would be a sharply higher rate.

This isn't intended to be complete, just a first pass at getting us closer to sanity while being pragmatic enough to not take the route of throwing out the current system entirely.

I'm curious what you think of this.

(#29) On August 1, 2010, Richard Schulze says:

1. Why should we tax capital gains and dividends at a lower rate than ordinary income?

>Capital gains are a mixed bag, ranging from the retiree who had to sell the family lake home because it cost too much to the billionare cashing in his fortune 500 investments. But changing taxation affects both pretty much equally, and the former has much less flexibility in “cashing out” than the latter. It makes changes problematic.

2. If there are valid reasons for taxing capital gains and dividends at a lower rate, why do we tax them at an essentially flat rate rather than the steeply progressive rate at which we tax ordinary income?

>A good point.

3. If we are going to have a progressive income tax rate structure, why should the top rate kick in at only around $370k per year? Should an individual making $400k per year and an individual making $400 million per year face the same top marginal rate?

>Probably at least in part because the more they have, the easier it is to shelter the funds if the incentives to do so are increased. And if they leave, who will make those huge political contributions?

4. Why do we allow so many distortionary deductions, such as the home mortgage interest deduction?

>Most of the deductions, as I’m sure you know, are designed at inception to encourage some social objective. With political pressures, they often get distorted in time (debt limits, second home mortgages, equity loans in the case of home mortgages). Still, the basic social objectives often remain valid. Social engineering has been part of the tax structure since the beginning, though, and I believe it is not likely to disappear.

5. Why do we have a separate estate tax, instead of just taxing inheritances as income to the recipient?

>This one is problematic. Settling of estates can take years, and taxing them can be an incentive to “get ‘er done.” It also accelerates some of the tax income which would otherwise wait until final settlement. Still, how estates are handled needs inspection.

More about the proposals later – have to go to a six year old’s birthday party.

John, I was hoping that you still might be on this thread. It's always a pleasure to read your insightful and well reasoned perspectives.

"Those who know these things know that the upper 50% of our income earners pay nearly all of the personal income taxes the government receives already"

This is both inaccurate and misleading. The comparisons that get bandied about on the internet and talk shows have nothing to do with earned income. Thy are based on annual tax returns which include all income, earned or not.

But it is not surprising that parents who are employed full time in meaningful careers will pay much more in taxes than their teenagers. Or more than people who are retired with only social security to support them. Or who clip coupons on tax exempt government bonds.

Moreover, you are talking about annual tax returns for one year. People with the very highest incomes one year often earn much less the next. Their income is dependent on the business cycle. As I recall, Ronald Reagan paid little of no income tax one year while he was President. It wasn't that he didn't make a lot of money, he also took a lot of losses on his investments.

Which is the real problem here. There is a limited relationship between how much net income people report on their income tax in a single year and how "rich" they are.

Our tax system provides a lot of tax breaks to people while they are raising their families. Once the kids have left the nest those folks will both pay, and be able to afford, higher taxes. I suspect on reason you see a lot of well-to-do 40 somethings as t-party activists is that their children have moved out and they now have to pay taxes like the rest of us.

"But nearly half of the population pays NO federal income taxes. "

How does an infant pay income taxes? This is the problem with these kinds of facts. They may be accurate in some carefully defined sense but, as used, they are outright lies. The fact is almost NO adult american gets through life without paying income tax. And no one here wants to be one of the people that do.

Lets take one specific example of who some of the "freeloaders". Someone who takes their savings and invests in new business organized as an S-corp. They have not income and lots of expenses the first year. They can take most or all of their losses off their income for federal income tax purposes. They can do the same thing any year the company has losses. Which means there are a lot of small business owners in the "freeloader" category.

Another example of "freeloaders", I mentioned above. Money taken from savings, from Roth IRA's and from Social Security aren't considered income on federal returns. So there you have another large group of freeloaders.

Ross,

The statement regarding half the population not paying taxes refers, of course to the income reporting taxable population, not the infants. And it is precisely correct.

No matter how you slice the bread, if you complete a tax return (because you have sufficient income to require it), and either get a refund equal to any amounts you have paid in or -- having paid in none -- owe no tax, you have "paid no taxes."

About half the taxable population is in this situation.

I do agree that various income adjustments and deductions provided for in the code coalesce to produce this situation.

1. Abolish the corporate income tax.

>Or perhaps make dividends deductible to the corporations that issue them.

Abolishing the tax might not help much with the dance unless all taxing jurisdictions did it, which seems unlikely.

2. Tax dividend income as regular income, subject to the same progressive rates as ordinary income.

>This makes sense. Interest is so treated.

3. Tax capital gains as ordinary income, with the basis adjusted for inflation over the period the asset is held.

>Makes sense to me, so long as adjustment for inflation is kept in the mix.

4. Eliminate the vast majority of deductions, including the one for home mortgage interest. Increase the standard deduction somewhat.

>Problematic, as if it were to happen I suspect it would soon be followed by new deductions to serve socially desirable goals. And some of the goals currently encouraged -- minus added on abuses of them -- are much in the public interest in my thinking.

5. Replace the estate tax by simply taxing inheritances as ordinary income, perhaps with some sort of allowance to prevent having to sell-off family businesses and farms.

>Problematic for me. Perhaps if real estate investments were adjusted for inflation and the "basis" treated as a gift with higher limits I could swallow it.

6. Add another tax bracket somewhere above the current top bracket but below $1 million. Add a second bracket at an income level somewhere between $2-$3 million, this would be a sharply higher rate.

>My principle concern with STEEPLY progressive rates is that they strongly increase the incentive on the part of those who are clearly able to absent themselves to do so. Would they leave? Depends on how hard one pushes. There is a point where losses would exceed gains, and to the detriment of all of us as the absence of these folks made itself felt in a hundred other ways.

The following post about Americans in the UK surrendering their passports to avoid US taxes is illustrative of my point.

http://www.moneynews.com/StreetTalk/Americans-UK-Passports-Taxes/2010/08...

@#37 --- That is very interesting.

I wonder if the benefits of such an action are short-term or long-term.

Also, the United Kingdom is not exactly a tax haven, and the cost of living over there is definitely higher than here in the U.S. For example, to relocate from San Francisco (not exactly a cheap city) to London, U.K., it seems you would need to be earning in U.K. at least 1.5 times what you earn in San Francisco*.

I would have thought Switzerland preferable to the U.K. for those with tax phobia.

Good luck to these economic emigres. But they won't be missed terribly here.
____________________________________________
*Source: http://comments.thisislondon.co.uk/london/threadnonInd.jsp?forum=121&thr...

Addendum: I would like to add the following to my post #38.

Today, I just read a bit of news that put a warm feeling in my heart. All's well with America. Not every wealthy person is a greedy s.o.b. who flees to other countries to avoid taxes.

"Bill Gates & Warren Buffett's billionaire challenge has netted 40 tycoons willing to give away at least half of their money."*
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* Source: http://slatest.slate.com/id/2262851/?wpisrc=newsletter
--- Original Story: Wall Street Journal ---