disproportionately

Someone someday is going to have to define that mathematically.

Gary, as you should know, the tax cuts were not linear.

Do you mean each cut individually or the sum total?

As you know the tax code isn't linear, nor is the income distribution, so it is impossible to have a linear cut.

Consider the cut in the dividends rate. It applies to everyone. It is a flat rate cut. Why isn't it linear? The only possible argument it isn't, is because income distribution isn't linear. Not the fault of the cut.

None of this however addresses what "disproportionately" is. I suspect the answer most give is any cut that reduces the tax of anyone making more than I am. Let me state that with a bit more precision. I get a $100 cut and Bill Gates gets a $100 cut. That is just as disproportionate but in the opposite way.

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I think there is a small degree of consensus that the Bush tax cuts were irrational then and still are. The "surplus" should have been used to address the debt and would have helped a bit with the two wars. I think they should go away. That will not solve the debt issue but at least it is a small step. Shared sacrifice is a characteristic of democracy. That includes those artificial people called corporations.

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disproportionately

Someone someday is going to have to define that mathematically.

Gary, as you should know, the tax cuts were not linear.

Do you mean each cut individually or the sum total?

As you know the tax code isn't linear, nor is the income distribution, so it is impossible to have a linear cut.

Consider the cut in the dividends rate. It applies to everyone. It is a flat rate cut. Why isn't it linear? The only possible argument it isn't, is because income distribution isn't linear. Not the fault of the cut.

None of this however addresses what "disproportionately" is. I suspect the answer most give is any cut that reduces the tax of anyone making more than I am. Let me state that with a bit more precision. I get a $100 cut and Bill Gates gets a $100 cut. That is just as disproportionate but in the opposite way.

My understanding of disproportionate, the top .1% pay a smaller percentage of their income as taxes than the next .9%, and that top 1 % pay a smaller percentage of their income as taxes than the next 4%. I am in that next 4%, so am in the group that pays the highest percentage of their income as taxes. If the top 1% paid the same percentage as me, the Fed would get several $100B in additional revenue, not enough to close the deficit, though enough to substantially reduce it.

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I think you'll find it's a bit more complicated than that ...

Gary, Medicaid (to a larger degree) and Medicare are hybrids -- that is there is a funded insurance component and an entitlement component.

Providing adequate funding for them as if they were purely an insurance program is possible -- by virtue of increased rates on income (and/or including dividend income as part of the rate base).

I can see that working.

The alternative which you might suggest is that, since they are in fact hybrid programs (including some portion of entitlement), that they should be eliminated. I don't see that working politically nor being the correct approach for this.

As Medicare and Medicaid costs are a major and increasing portion of the overall budget, I see that they need to be high up on the priority list of getting dealt with. With these, as with health care cost generally, the cost issue simply must be dealt with as well.

Gary, I guess I tend to agree with Bobby here.

That is, *if* you can accept a progressive tax rate (and I can readily understand that you might reject a progressive tax rate as being disproportional), then the higher one's income, the higher the actual tax rate should be.

Leaving out FICA and other taxes (state and local, and other federal taxes), the way the current tax code appears to work, people with largely wage/salary income in the $75K to $125K range pay a higher effective rate than those in the $250K or $500K and up range. Seemingly this mismatch gets significantly greater as one climbs the wealth scale.

I see that as disproportionate -- but again, unlike some, I accept the concept and rationale behind progressive tax rates.

Wow Gary, you're sounding awfully 10th amendment right-wing extreme there in your list of things the federal government must do.

What is it again we disagree on? I forgot.

You go Gary!

So it seems you do not think anything else should be added to that list. Interesting.

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As to the current tax code, it is a mess. How the provisions it has to ensnare the highest income persons are instead being used to ensnare the middle class, if there are any left. Perhaps the worst of these is the AMT.
http://www.irs.gov/pub/irs-pdf/i6251.pdf and http://www.irs.gov/pub/irs-pdf/f6251.pdf
The top half of the form, lines 2 through 27, takes away deductions. It takes away the medical cost deduction; it takes away the deduction for state income tax; it takes away the deduction for home mortgage interest. Why does this not prevent the disparity in tax rates? After all the AMT tax rate is 28%.

A look at what deductions are still allowed is needed. The huge one being charity. You can give half your income to charity and take that as a reduction to your income.

Do you want to take money away from charity and reroute it to the Federal Government?

The other big difference is the source of income. The middle class gets a paycheck and that has FICA attached. The top people get their money from interest and dividends. No FICA.

Do you want to slap FICA in interest and dividends and then watch it blast out in massive SS checks to match those contributions?

We need to stop talking about the tax rates and focus on the deductions. The Bush cuts are necessary for the middle class. They need to remain for them. No one has proposed a cutoff limit for them, only all or nothing.

Lets take an example a lot of people wish would work for them. They hit a small lotto jackpot. They fork over the 1/3 to the feds and blow another 10-20% paying down their debt to zero. Of course they quit their job and retire. The rest they shove into investments which they hope will keep them going for the rest of their life. So how much is it? Well suppose they bought some CenturyLink[1] which is yielding 7.39% (dang high). They put $1million in. Each year they get a dividend check for $73,900.00. Feds now grab 15% of that. That leaves them about $62,000.00 to live on. So you want to change this so the Feds grab say 15% FICA + 30% income = 45% of this. Okay, just so you understand exactly what you want.

Going a bit more with this. The winner happens to be getting up there in age. He is going to leave that $1million to his children. Oh wait, Federal Estate Tax starts at 50%! What do the kids get? A bill from the CPA to prepare the estate tax form that is more than they will get in a year from their inheritance. Okay, just so you understand exactly what you want.

A different example. Mr. Jefferson started his cleaning business from a one man shop. Now he has dozens of employees and tons of accounts. He wants to retire. He finds someone to buy his business. $5 million. What happens to his tax return? He gets killed. Now if George had been able to pay the tax on the appreciation each year his total tax might be 25% of the hit he takes. So what happened to "Income Averaging?" It used to be in the tax code. It was there to let the rags to riches people keep their riches. Gone. And so has the middle class.

The Bush tax cuts are for the middle class. If you don't want them to apply to people who average $5 million a year, then write the deductions so they phase out around $5 million a year. Don't punish the middle class.






[1]CenturyLink is in my portfolio.

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Gary, if the Bush tax cuts were so good for the middle class, why the increasing gap in wealth between the uber rich and the rest? OBW, 5 mil per year ain't middle class.

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Gary, I'd start phasing out those deductions at $150K a year or so, not $5M.

The thing is, the Bush cuts were for the wealthy, they were sold as being for the middle class. Certainly the middle class got a piece of the pie.

But if you are defining the middle class at $5M -- you are even more far afield from reality than R-Money -- he defines it at $250K a year in income.

Heaven knows there is much to rail at regarding the tax code -- so let's make it perfect and if we can't do that, leave it exactly as it is. After all, paralysis is so effective.

Do you want to slap FICA in interest and dividends and then watch it blast out in massive SS checks to match those contributions?

You mean remove the $110K cap as well? Makes sense to me.

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I think you'll find it's a bit more complicated than that ...

Gary, I'd start phasing out those deductions at $150K a year or so, not $5M.

So $150K is the most someone can give to another. Got it.

The thing is, the Bush cuts were for the wealthy, they were sold as being for the middle class. Certainly the middle class got a piece of the pie.

But if you are defining the middle class at $5M -- you are even more far afield from reality than R-Money -- he defines it at $250K a year in income.

The $5M was an estate value, total lifetime, not yearly income, or didn't you see that from context?

Heaven knows there is much to rail at regarding the tax code -- so let's make it perfect and if we can't do that, leave it exactly as it is. After all, paralysis is so effective.

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The thing is, the Bush cuts were for the wealthy, they were sold as being for the middle class. Certainly the middle class got a piece of the pie.

But if you are defining the middle class at $5M -- you are even more far afield from reality than R-Money -- he defines it at $250K a year in income.

The $5M was an estate value, total lifetime, not yearly income, or didn't you see that from context?

That's a tad unfair, you did provide an example of a $5M estate though you also said:

The Bush tax cuts are for the middle class. If you don't want them to apply to people who average $5 million a year, then write the deductions so they phase out around $5 million a year. Don't punish the middle class.

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I think you'll find it's a bit more complicated than that ...

Ah -- estate value -- yup, $5M is pretty much on the high side even for that.

Regarding deductions for contributions -- I wasn't actually thinking about that, I was thinking about phasing out tax favored status for dividend and capital gains income from year to year with incomes above $150K -- note, I say phasing out tax favored status -- not eliminating it at $150K.

As to contributions -- actually there is something to be said for that -- but I'd readily accept seeing that limit quite a bit higher than that.

I guess the socialist in me doesn't see that people making seven figures need a lot of tax code help from the Fed -- they will easily get it from their CPA's.

Bobby, thanks for the push back on Gary's 'catch' of my reading. <smile>.

That being said, I think that estate taxes could kick in at $2M to $3M -- as I don't see estates of that size truly in the middle class -- especially once all the costs of uncovered medical expenses get tossed in (which they would in a number of Gary's scenarios).

The thing is, to balance the budget it should be obvious that you simply can not do that on the 'backs of the super wealthy' or even the backs of the simply wealthy. Part of that balancing on the revenue side will come from the middle class. I'd readily accept having a minimum tax (say $100 after the first $1K) for everyone -- if only to shut up the '47% of the population are takers' crowd.

I've often contemplated why the economy goes so well when taxes on the wealthy are higher.

After much thought, I boiled it down to several factors.

1) They need to do more to keep making the same money. So.. they do more.

2) Spending to save. To achieve 1) then they have to spend. Handing them money without any strings attached allows them to just put it away in a nice bond or stock. No need to worry about creating anything when money is just being handed to you.

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

Give the man a hand.

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#resist

The exact opposite is true of low wage earners. the EIC is to encourage people to work instead of being on the dole. Even though the gov't tosses a couple grand at poor families every year those families provide a substantial amount of their own care. This eliminates at least double the amount paid out in additional housing, food stamps, and other gov't "handouts". Additionally, the EIC is routinely returned directly to the economy from household purchases to durable goods purchases. These directly stimulate the economy.

Obamacare for the poor will also allow these people to lead healthier lives and in turn stay on the job producing instead of sitting in an ER

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

Ah -- estate value -- yup, $5M is pretty much on the high side even for that.

Regarding deductions for contributions -- I wasn't actually thinking about that, I was thinking about phasing out tax favored status for dividend and capital gains income from year to year with incomes above $150K -- note, I say phasing out tax favored status -- not eliminating it at $150K.

As to contributions -- actually there is something to be said for that -- but I'd readily accept seeing that limit quite a bit higher than that.

I guess the socialist in me doesn't see that people making seven figures need a lot of tax code help from the Fed -- they will easily get it from their CPA's.

Start at $150K, end at $5M. Okay.

As to estate values, $5M in cash is a chunk. In property, not as much. In the form of a business that needs to be run, very tiny.

I see here there is a need to throw the middle class under the bus. Last I checked the upper middle class were still middle class and not uber-rich.

Here is the real effect of the 50% estate tax on a business owner. Say you started growing the business from some beg loans from relatives and as much as you could charge on your credit cards. Thirty years later you have a nice gross income of $5M a year. After you pay all the salary, rent and inventory you are taking home $125K a year. Middle class? Okay you die and want to leave the business to your kids who are working there. That is a problem now. Why? What is the business worth? Depending on the type of business it is worth between 15 and 24 months of gross income. So somewhere in the rage of $6.25M to $10M. Still middle class. So do your kids have the cash to pay the estate tax? Middle class have $5M cash handy?!! So they have no choice but to sell it. Now who has $10M cash laying about. Uber-rich. So the business trickles up to the uber-rich. The workers get screwed as they no longer are working for someone with middle class values but someone with filthy rich values who will treat them like slaves.

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