The gap between the bottom and top grows ever larger (insurance, 2013)
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But once they do, a lot of small businesses pay personal income taxes.
Yes, they will pay income tax on profit if they are a pass-through entity. But if they were employed they would pay the same taxes, so why would higher marginal taxes create disincentives to create businesses?
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Originally Posted by chopchop0
When you are one of the richest people in the WORLD, worth tens of billions, it's easy to advocate taking 10%+ of your own wealth away without batting an eyelash. The same cannot be said of a family making $250 K/year.
I assume you are referring to the changes Obama spoke about during the election, in which case you are misrepresented matters. A family making $250k would pay no additional taxes, rather any income that they made beyond $250k would be taxed at a higher marginal rate.
Between the 1940~1980 the marginal rates were much higher (70+%), but they applied to income adjusted for inflation in the $400k+ range.
But families making more than $250k can clearly do with a bit less money, after all the vast majority of Americans live on much less. Trying to claim that this would create hardship for this group is a bit silly. But I'm not even talking about Obama's proposal in the first place, I would advocate much higher marginal rates than Obama is proposing. Something like:
Btw, what is the proper income distribution? It's a very "liberal" concept that income should be distributed in a certain way.
There are many measures of income equality and I don't think there is an exact distribution that should be targeted, rather a range of distributions should be accepted. The distribution of income will naturally shift with the business cycle, but once the gap from the top and bottom becomes very large you will start to observe 3rd world conditions. Currently the distribution in the US is becoming dangerously poor and there are really only two ways to deal with it 1.) Let the rich crash and burn, 2.) soak the rich in taxes.
Its too late for 1.), the rich were already bailed out so that leaves us with 2.). At the end of the day the situation will correct itself sooner or later, its just a question of whether it happens peacefully by government policy or by the blade of a guillotine.
The idea that lowering taxes will result in greater tax revenue is easily disproved by looking at what happened when this was actually done.
But families making more than $250k can clearly do with a bit less money, after all the vast majority of Americans live on much less.
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Trying to claim that this would create hardship for this group is a bit silly. But I'm not even talking about Obama's proposal in the first place, I would advocate much higher marginal rates than Obama is proposing. Something like:
So by that logic, why not just spare the first $1 million, and start taxing anything above it at 60%? Do you disagree that someone making $350 K is in the same boat as someone making over $1 million?
Btw, your assumption about 3rd world conditions is wrong if you think the economy is in a static bubble. Wealth is not a zero-sum game, and even if the gap grows larger, the lower and middle-classes in this country will continue to be far better off than many other countries.
If you want to see real poverty, go to Haiti, Nicaragua, Cuba or plenty of countries in Asia.
Yes, they will pay income tax on profit if they are a pass-through entity. But if they were employed they would pay the same taxes, so why would higher marginal taxes create disincentives to create businesses?
Because starting your own business and working for someone else have different inherent risk levels.
So by that logic, why not just spare the first $1 million, and start taxing anything above it at 60%?
For the same reason we have a progressive tax system now, namely to tax those with the greatest ability to pay the highest on a progressive scale.
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Originally Posted by chopchop0
Do you disagree that someone making $350 K is in the same boat as someone making over $1 million?
They are obviously in different boats, hence why the latter should be taxed more heavily than the former.
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Originally Posted by chopchop0
Because starting your own business and working for someone else have different inherent risk levels.
Sure, but how does this address the question? When people make it big in business they don't do it by realizing income, but rather capital gains. Bill Gates is not a billionaire because he has been getting $100 million incomes over the last 20 years, but rather because he built a business from nothing that is now worth billions. High marginal income tax rates would not change the potential gains from starting a successful business.
But we don't have to rely on armchair arguments here, the marginal tax rates between the 40's and 80's were 70+% yet there was no reduction in business formation, in fact most of today's biggest were created during this period.
Quote:
Originally Posted by chopchop0
Btw, your assumption about 3rd world conditions is wrong if you think the economy is in a static bubble. Wealth is not a zero-sum game, and even if the gap grows larger, the lower and middle-classes in this country will continue to be far better off than many other countries.
Large income gaps are correlated with poor living conditions for those on the bottom, I can't think of any counter-example off hand. Here is a list:
Every country with a large gap is a 3rd world country/developing country, though some countries with small income gaps are poor. So a small income gap is not a sufficient condition to be a first-world nation.
The standard of living for the middle-class and beyond in this country are diminishing, despite large growth in wealth in the top .1% wages for the middle-class have been almost stagnant for the last decade. Furthermore the poor in this country live a pretty brutish existence, its not all that different from those living in Cuba, etc.
Every country with a large gap is a 3rd world country/developing country, though some countries with small income gaps are poor. So a small income gap is not a sufficient condition to be a first-world nation.
The standard of living for the middle-class and beyond in this country are diminishing, despite large growth in wealth in the top .1% wages for the middle-class have been almost stagnant for the last decade.
Ah, the correlation-causation fallacy. What's to say that those gaps aren't the result of a corrupt government bureaucracy? Places like Venezuela, Columbia and Haiti don't aren't exactly the most lawfully-governed countries around.
Again, even if middle-class incomes don't rise quite as fast, it's not necessarily a negative if the aggregate wealth in the country has increased and improvements have been made in quality-of-life thanks to technology and innovation.
Have you been outside of this country before and see how other middle-classes live?
But we don't have to rely on armchair arguments here, the marginal tax rates between the 40's and 80's were 70+% yet there was no reduction in business formation, in fact most of today's biggest were created during this period.
And since the advent of Reaganomics in the 80s, such business formation has skyrocketed. The tech revolution was born during the era of lower marginal tax rates.
Where? I'm talking about correlations, I never made a causal claim.
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Originally Posted by chopchop0
Again, even if middle-class incomes don't rise quite as fast...
Wages have been stagnant over the entire decade and they are now declining. Furthermore, the working-class not only have declining wages but also very high unemployment rates. The working-class/middle-class are slowly sinking while the top 5% or so keep getting wealthier.
Quote:
Originally Posted by chopchop0
Have you been outside of this country before and see how other middle-classes live?
For the same reason we have a progressive tax system now, namely to tax those with the greatest ability to pay the highest on a progressive scale.
They are obviously in different boats, hence why the latter should be taxed more heavily than the former.
Sure, but how does this address the question? When people make it big in business they don't do it by realizing income, but rather capital gains. Bill Gates is not a billionaire because he has been getting $100 million incomes over the last 20 years, but rather because he built a business from nothing that is now worth billions. High marginal income tax rates would not change the potential gains from starting a successful business.
But we don't have to rely on armchair arguments here, the marginal tax rates between the 40's and 80's were 70+% yet there was no reduction in business formation, in fact most of today's biggest were created during this period.
Large income gaps are correlated with poor living conditions for those on the bottom, I can't think of any counter-example off hand. Here is a list:
Every country with a large gap is a 3rd world country/developing country, though some countries with small income gaps are poor. So a small income gap is not a sufficient condition to be a first-world nation.
The standard of living for the middle-class and beyond in this country are diminishing, despite large growth in wealth in the top .1% wages for the middle-class have been almost stagnant for the last decade. Furthermore the poor in this country live a pretty brutish existence, its not all that different from those living in Cuba, etc.
Do you want high taxes on high income wage earners because it is the most efficient tax or because you don't feel people deserve high incomes?
And since the advent of Reaganomics in the 80s, such business formation has skyrocketed.
No it has not, business formation has actually declined since the 80's. In 1983 14.3% of American households owned a business, where as today the number is around 11%.
Quote:
Originally Posted by chopchop0
The tech revolution was born during the era of lower marginal tax rates.
Nope, the tech revolution started in the 70's when marginal tax rates were around 70's. Microsoft, Apple, etc were all created when marginal tax rates were high. Even during most of the 80's the marginal tax rate was 50%, noticeably higher than today.
The data simply does not support the claim that high marginal tax rates reduce business formation. For anybody that understands business the reason is pretty simple, individuals that own businesses gain most of their wealth via capital gains not income/dividends.
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