Category Archives: taxes

Have Your Taxes Gone Up? (1980-2010)

 

An excellent annotated analysis by the NYT looking at federal, state, and corporate tax brackets.

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Have Your Taxes Gone Up? (1980-2010)
Dustin
Mon, 03 Dec 2012 16:00:32 GMT

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People are missing the point on taxes

 

I recently had a contest asking commenters to find an article or blog post on the fiscal cliff deal that did not contain factual errors regarding the change in tax rates.  No one succeeded, even my own blog post contained errors.  And so does the David Henderson post that I’m about to comment on, although it’s far better than most.  I sometimes have the feeling that the press doesn’t even care what the truth is.  I also think people are being far too kind to the Congress.  This is a terrible bill, and should be roundly ridiculed and mocked.  Consider the following analogy:

Suppose Congress declared April 15th to be “handheld calculator regression day.”  All Americans had to go to a public building and sit there all day doing complex regression analysis using simple hand held calculators, for no reason art all (I did regressions like this in the 1970s, BTW.)  Obviously there’d be outrage.  Now consider a recent post by David, who defends the bill as the best the GOP could have gotten:

Most of the criticisms that Scott Sumner and Steven Landsburg make are ones I share. So I’m not judging the tax bill to be good. Viewed in a political vacuum, it sucks. Viewed in the world we’re in, it’s actually a pretty good bill.  .  .  .

Think about the context. Republicans, who, since 1981 have been the anti-tax-increase party, hold only the House of Representatives. The President, who is very hostile to high-income people and very strongly in favor of double-taxing savings, was just re-elected. The Democrats hold the Senate.

Had the Republicans held out for anything like the reforms that Sumner and Landsburg wanted, the bill would have been Dead on Arrival in Harry Reid’s Senate.

Maybe I’m reading between the lines, but I wonder if David assumes that I view the GOP as the good guys, and the only question is whether they were able to hold back the evil Dems, who favor much higher taxes.  In fact, I see the GOP and the Dems as both favoring big government, both being the bad guys.  Recall that when the GOP took all three branches of government for the first time in my lifetime (in 2001) they went on an orgy of spending, after 8 years of pretty reasonable fiscal policy under Clinton.

Now let’s examine my criticism of the phase-outs.  These require taxpayers to do all sorts of complex mathematical calculations for no reason at all.  It’s just busywork.  These don’t bring in more revenue than you’d get from slightly higher MTRs, and they don’t affect the progressivity of the tax code.  Suppose the phaseouts bring in $100 billion.  Is David suggesting that Obama would not have accepted the following deal from the GOP:

“Mr. President, your proposed phaseouts bring in $100 billion from the people in the $250,000 to $400,000 income range.  We propose instead that the MTRs on that group rise from 33% to 35.7% (or whatever is needed.)  This increase would make the tax system far simpler, bring in equal revenue, and be just as progressive.”

Is David saying Obama will refuse that deal?  Indeed Obama is just as guilty as the GOP, for not proposing it.  Why didn’t it happen?  Perhaps the GOP was concerned with public relations.  Maybe they wanted to hide the fact that they were caving in to Obama and signing off on raising taxes on everyone making over $250,000 per year, and all the know-nothings in the press and blogosphere played along, parroting the GOP lies.

The marriage penalty was another big issue I raised.  I don’t recall hearing a single GOP Congressman complaining that Obama was actually increasing the marriage penalty.  It would have been great PR to tell the public that Obama’s bill would result in the government paying people thousands of dollars to get divorced and live in sin.  They could talk about how men living with their mistresses would pay much lower taxes than men living with their wives (if the women also worked.)  They could propose a revenue neutral fix.  Let’s be honest, the GOP silence on this issue shows they favor the marriage penalty.

I also discussed the higher MTRs.  As I noted in my post, I think you could argue that the upper middle class and rich should pay rather high MTRs on their wage income.  At least as long as we have government spending at these levels.  And as I said, the GOP favors big government, indeed they increased the size of Medicare, federal aid to education and homeland defense under Bush.  They want an even more bloated military, agricultural price supports, space program. etc.  What the GOP doesn’t realize is that these things have to be paid for.

But let’s accept David’s premise, and see if the GOP could have done better in holding down MTRs.  I claimed that their big mistake was made in 2011, when they might have latched on to Schumer and Pelosi’s proposal to just raise taxes for those making over a million dollars a year, and make the other tax cuts permanent.  Obama wanted a deal to cement his re-election.  But they never tried.  They refused to even discuss any tax increase at all.

A bit later I suggested the GOP would lose the 2012 election and end up with a far worse deal from their perspective, which is what happened.  So on the basic question of size of government, the GOP blew it in 2011, n0t 2013.  I certainly agree with David that the size of the tax increase in dollar terms is about the smallest the GOP could have gotten in 2013.  My criticism lay elsewhere.

We let our politicians get away with murder, partly because taxes are so complex.  If the public understood that there was absolutely no reason for the complexity, that it was just make-work so Congressmen could hide the extent to which they raised taxes, there would be outrage.  Or at least there’d be outrage in a country with high civic virtue like Denmark, maybe not Greece or Pakistan.  I don’t like where America is headed.

Someone in my department just got divorced and likes to point out that his taxes will fall by more than $10,000, and yet he still lives with his “wife.”  Is that fair?  BTW, I like him and applaud his decision, but he shouldn’t have to go that far.  What a sad, pathetic tax code we’ve constructed, and it doesn’t have to be that way.  In Sweden they tax individuals, and simply send you the bill.  No forms to fill out.  No estate tax.  We should demand no less.

PS.  My foaming at the mouth anger is directed at Congress and the press, not David, who I like a lot.

PPS. The funniest comment after my contest was this from Ben J:

Struggling to find any examples of the actual effective rates. Finally found a website with a collection of people talking about rates. I noticed someone mentioned the real capital gains tax rate of 23.8%…

…and they were quoting S.Sumner, Bentley University.

http://blogs.wsj.com/economics/2013/01/02/academic-economists-react-shortfalls-of-fiscal-cliff-deal/

God help us if they are looking to me for expertise on taxes!  Later I found out that the top capital gains rate would be higher than 23.8%, so even I was in error.

People are missing the point on taxes
ssumner
Sat, 05 Jan 2013 03:24:45 GMT

Taxation but no Confiscation

Megan McCardle makes a great point on the limits of the ability to raise taxes!

Taking your tax rate from 5% to 10% decreases your after tax income by 5.26%.  But by the time your tax rate is 50%, you’re only keeping half of your income.  So increasing the tax rate by 5% decreases your after-tax income by 10%: you used to take home 50 cents out of every dollar, but now you only take home 45 cents.  

If you were surprised that Gerard Depardieu decided to leave France rather than pay the new 70% top rate, think of it this way: the rate increase was only 30%, but it was going to cut his income in half. Yes, that would still leave him with more money than you and I live on.  But people don’t think this way: if the government came and took half your after-tax income away, that would still leave you with more money than a middle-class family in Bangalore lives on, and you would still be hopping mad, not to mention panicking about how the mortgage was going to get paid.  Even if they only took half of your marginal after-tax income away–an extra 50% of every dollar you made over $40,000 say–you would be pretty upset, because you’ve probably already earmarked uses for those dollars.

Taxing Analysis of Taxes

There a lot of discussion about taxes, especially making them more progressive.   Do I have an argument that that’s a bad idea?  No.

However, I do think there’s a lot of points of view with some merit that are hard to test to a certain conclusion.  For example:  is growing envy as a result of inequality a reason to impose millionaire taxes?  Maybe not, and a new soak the rich policy will have unknown effects and may be unwise.  Here’s more on the issue of envy and the effects of making its reduction a goal.

…the modern wishy-washy approach to student evaluation is thwarting envy, which will actually reduce the amount of learning that takes place. If you know who the top performers are in your class, you can watch them, see what they do, and try to replicate it. Maybe you can get them to show you a few things.

What about "positional" goods? These can actually be performing a useful economic role, even if they are pure "waste" in the conventional sense….To get envy working as a force for social good, we need to be able to correctly identify economic successes. How are we going to do that if the successful people hide their wealth? Someone who pushes her Beamer off a cliff in public is demonstrating to us that she is successful – so successful that she can waste resources…

You don’t want to tax the positional goods or pass laws against having them, for the same reason that you don’t want to take grades away from the elementary school kids. In doing so, you are thwarting envy. When you do that, you will get less learning and less innovation, and on average we will all be worse off.

Another good analysis is here, and comes to different conclusion. 

The bottom line I think is that the effect of dramatically higher taxes on the upper class is unknown.  I would argue that in order to put our fiscal house in order, we should move to at least partially eliminate the Bush era tax cuts across range of income, not just for the wealthy, however defined.  This has the advantage of moving us back toward the tested Clinton rates.  Those rates went along with fairly good economic conditions.   A strong soak the rich policy, while appealing in some ways has a less predictable outcome than trying to move back to the taxes we had as recently as 11 years ago.

Econ 101 for the Supercommittee at Steven Landsburg | The Big Questions: Tackling the Problems of Philosophy with Ideas from Mathematics, Economics, and Physics

Econ 101 for the Supercommittee at Steven Landsburg | The Big Questions: Tackling the Problems of Philosophy with Ideas from Mathematics, Economics, and Physics.

Death and Taxes

The head tax at least in basic public finance courses is ideal.  There’s be no way to avoid it, baring autoabortions.

Taxes are universally dissed, but they just exist because not all goods can be privately consumed (paid for and consumed by individuals who decide how much and what private goods to consume).  We can’t individual decided what wars to fight, how much defense is enough, or how much privation and relief of it we want to see on the street.  We collectively make these choices and nobody is happy with them.  We all pay for that shared consumption through taxes.  In the end it seems likely we wouldn’t like a no national defense or collective consumption world better, or at least the cost of privatizing everthing would be more than the benefits of doing so.  Frank Knight said (roughly):  What’s necessary is ideal.

So, taxes are a necessary part of our reality until we can make all goods privately consumable.  They’re like – weather that makes us purchase heating and cooling; drugs we buy because our bodies are frail and impermanent; and scarcity itself that makes us, not Gods who decide what we want without constraints, but frail temporary being that make the best (optimal) choices within limits, including taxing ourselves.

Death and taxes are just part of the reality of our existence.  It makes no sense to call them bad, or good.  they just are…reality.  Even if it may serve our ideolgy to feel otherwise.

You Can’t Tax a Dead Man

This argument that taxing a man who spends none of a hoard of cash wealth takes consumption from other than the hoarder is made here.  It illustrates that case is not wealth and the fallacy of mercantilism.  Interestingly Paul Krugman is confused about this.

On Monday, I wrote about the man who can’t be taxed. There were many comments, some confused, some insightful, and (at least) one brilliant. Let me highlight that brilliant comment, then beat the point to death a little, and then draw a large moral.

Our commenter Ken B invited us to imagine a dead man, with, say $84,000,000 in his bank account (and a will that requires this bank account to be maintained forever). And let’s suppose the government confiscates, say 82 of those 84 millions, thereby allowing it to reduce other people’s current or future taxes —making those people richer. They buy more stuff. They eat more, they burn more gas, they occupy more space. Where did that stuff come from?

(Alternatively, instead of lowering someone else’s taxes, the government takes the opportunity to spend more, in which case the government claims more stuff. We still have to ask where it comes from.)

It certainly did not come from the dead man, who was eating nothing, burning no gas, and occupying no more space than he continues to occupy. Instead, somebody else must decide to consume less.

But initially nobody wants to consume less. So people, collectively, are trying to consume more stuff than is available. This excess demand for stuff pushes up prices and/or interest rates until people are willing to cut their consumption.

There is no meaningful sense in which the dead man paid the tax. Instead, the tax burden is borne by those people who were hurt by rising prices and/or interest rates.

Now Robert Kendrick, who has 84 million dollars in the bank and spends effectively zero, is (for these purposes) the economic equivalent of a dead man — he can’t consume (much) less than he’s already consuming. So if you take his money and use it to reduce some people’s taxes (or to increase government spending), then you’ve surely pushed the cost off on to some other people. Your accountant might tell you you’ve taxed Mr. Kendrick, but your economist will tell you that the actual tax burden fell on some entirely different people.

Who are the losers here? If Mr Kendrick has a nephew who plans to inherit and blow through the 84 million, he’s certainly prominent among the losers. But even if Mr Kendrick has no heirs — even if he somehow manages to live forever (continuing to maintain a minimum level of consumption), the someone else bears the burden of the tax.

Here is the larger moral: Money is not wealth. The great mistake is to think you’ve understood a transaction just because you know where the money went. That will lead you to even sillier mistakes, like thinking that if the government comes into an $82 million windfall, it can use that money to buy goods, and the goods don’t have to come from anywhere. This confusion — the idea that money can substitute for goods — comes up often in economic policy discussions, and it inevitably spawns nonsense. The same confusion underlies the mercantilist fallacy, which economists have recognized as exactly that — a fallacy — for over 200 years. It’s a good one to be on guard against.

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You Can’t Tax a Dead Man
Steve Landsburg
Thu, 21 Apr 2011 06:01:35 GMT