People who make $250,000 or more a year can afford a tax hike.

http://www.slate.com/id/2243529/

by georgecmu • 16 years ago

19 101 16 years ago

The question is not "Can they afford a tax hike?" The question is, "Will they continue to gross $250,000 and take home less of it, or will they find a lower-stressed job and make less?"

The answer is probably the latter, for a lot of folks.

modoc3• 16 years ago

I'm right there on that line. Honestly I pay a TON of taxes already. Very high rate, lots of taxable income. Cutting back to be under 250k would probably make more sense than making 255k and paying a lot more in taxes.

I don't mind taxes and social programs. I do mind paying for unending wars in the Middle East (not making a political statement, just a budgetary one). Cut some of the crazy expenses, and I'll be happier paying my taxes, and you probably won't even have to jack them up.

Eliezer• 16 years ago

> Cutting back to be under 250k would probably make more sense than making 255k and paying a lot more

What kind of job do you have that makes >$250K and doesn't require you to understand how income taxes work? I'm skeptical.

gnaritas• 16 years ago

Seriously man, that's not how taxes work at all. You can't take home more by making less. 255k will have more take home than 250k even if the marginal tax rate was 99%.

maximilian• 16 years ago

If you make $255K, you only get a higher tax rate on the extra $5K. You'll still have more money than someone making $249K. No matter how you slice it, more money = more money. The gov't just will tax you a bit extra on the 5K.

encoderer6• 16 years ago

If you make nearly $250k and do not understand even the basic progressive income tax system in this country, then I just don't know where to begin...

lbrandy2• 16 years ago

Uh. No. The answer is the former, for the absolutely overwhelming and unspeakably vast majority of them. And for the rest, there are a dozen equally qualified people ready to do that job for them.

drewcrawford3• 16 years ago

So you're saying that a person intelligent enough to make $250k per year wouldn't sit down and re-evaluate their job choice when they get an (effective) pay cut?

natemartin• 16 years ago

Really? That doesn't make any sense to me. "Oh my, I'm making marginally less take-home money. I should completely change my career and get even less money!"

Remember it's a marginal tax system. They would only get taxed more on the amount they are making over 250k.

No matter what the tax rate goes to, you'll still be bringing home more money by having a higher paying job.

drewcrawford3• 16 years ago

> Will people create wealth if they can't get paid for it? Only if it's fun. People will write operating systems for free. But they won't install them, or take support calls, or train customers to use them. And at least 90% of the work that even the highest tech companies do is of this second, unedifying kind.

http://paulgraham.com/gap.html

dkokelley• 16 years ago

Or they might mask their income, or elect to receive it in other forms like stock options. I think capital gains get taxed at 15%, soon to be reverted to 20% (still less than 39%).

rbranson7• 16 years ago

This would make sense if income level actually truly scaled with job difficulty or discomfort. Even if they doubled my taxes, I wouldn't quit my job to go work some minimum-wage drudgery. Higher salary ends up also meaning your job is actually more comfortable. The kind of bullshit people have to put up with in their $7/hr jobs is amazing to me sometimes.

ryanwaggoner12• 16 years ago

Of course they can "afford" it. But so what? Every single billionaire can "afford" to be taxed at a 99% rate.

The bigger question: is it in any way fair, just, or moral to tax society's most successful more heavily just for being more successful?

EDIT: The other salient question that I forgot to mention is: "why do we need more taxes?" Our government already can't manage what they have with any sort of reasonable efficiency. Are we really supposed to believe that they'll do better if we give them more money?

jfager6• 16 years ago

Why shouldn't the people who benefit the most from how society is structured be expected to pay the most for its maintenance?

ryanwaggoner12• 16 years ago

Aside from the larger question of why the government has the right to take people's income by force to begin with, I can think of four practical reasons off the top of my head:

1) It is a disincentive to others who might try to reach that level

2) It's hardly clear that the success of the wealthy is due to how society is structured, and not their own effort. Undoubtably some is, but is it 90/10 or 10/90?

3) It encourages relocation of talent, business, and capital to states or countries where the tax situation is more favorable.

4) It's not clear to me that more tax revenue results in a net benefit to society. My opinion is that the rich are better at investing their money for optimum yield than the government, and the end result is more benefit for society.

nickpp2• 16 years ago

Who benefits the most from the society IN RAPORT TO HIS CONTRIBUTION: the one making 30k or the one making 300k?

Edit: just having the money in the bank is not benefiting. Using service, health care, infrastructure, education, free time, etc. That is benefiting.

Edit2: Furthermore, they are ALREADY paying the most.

DanielBMarkham2• 16 years ago

Ok so let's say I have a billion dollars.

I can live anywhere in the world I want to -- and with all kinds of luxuries.

Seems to me like the "people who benefit most from how society is structured" would be those poor folks who through no fault of their own, perhaps mental retardation, chronic illness, or birth defect, cannot make a living and yet are provided for by the rest of us. These are the people who would die under a differently structured system, right?

After all, rich folks got it good under all kinds of systems.

fleitz2• 16 years ago

I believe you are conflating society and government, and I'd actually be very much in favor of the gov't providing bills for it's services so that I could cancel the "services" I don't want, and/or find alternate providers.

javaru• 16 years ago

I would say that the society's most successful are often the ones benefiting the most from the law and order provided by government. If the highway, mail, law enforcement, and judicial systems, for example, didn't work as well, it would be much harder to create a successful business.

slpsys2• 16 years ago

Exactly. "If you wish to make an apple pie from scratch, you must first invent the universe." It's not as if wealth can be generated from the void. The top 1% often give so graciously to the universities that made it possible, but complain heartily about the governmental institutions that have, as well.

ryanwaggoner12• 16 years ago

Yes, and they're already paying much, much more than the less successful by virtue of the fact that they make more. But by taxing at a higher rate because they have more money, you're effectively punishing them for success. It'd be a like a VC demanding that if you exit at $10m, you owe them $3m, but if you exit at $1b, you owe them $500m.

michaelcampbell2• 16 years ago

> I would say that the society's most successful are often the ones benefiting the most from the law and order provided by government.

Even if that were so, (any citations there? The assertion is almost laughable.), it's not what the argument being made is saying. The argument is being made that these institutions are somehow providing MORE value to the successful, so the more successful owe more for their use.

Which is simply not true. If a clever, successful person is somehow making more or better use of these tax-funded services, that's the side effect of him being clever or successful, not that the service has provided him some sort of hidden value that the less successful cannot take part of, and for which the successful person "owes" more because of.

ryandvm• 16 years ago

Your edit is the best part. I wouldn't necessarily mind paying higher taxes if the government were a capable solutions provider. Alas, if you've ever actually worked for the government, you know they are not.

ryanwaggoner12• 16 years ago

I was in the Navy and the month before the end of every fiscal year was "see what kind of expensive shit we can find to buy because I need to use up my budget so I don't lose it next year" time. After that experience, it's hard for me to have faith in the institution of government as an agent of efficient allocation of capital.

keltex• 16 years ago

I think the real question is will this tax increase make a significant dent in the budget deficit?

anigbrowl• 16 years ago

Our government already can't manage what they have with any sort of reasonable efficiency.

An assertion in axiomatic clothing, I think.

As for your opening question, more successful at what? Certainly, success in one's career or investment is one answer, but so is 'successful at minimizing one's tax liability'. We're talking about going back to the marginal tax rates of the 1990s, which strangely I don't remember as being a time of great fiscal suffering. If we had not cut those taxes to begin with, perhaps we wouldn't have such large deficits as we presently do.

encoderer6• 16 years ago

You know what... I'd almost feel sorry for these top 1%'ers... Almost, if it wasn't these very people who OWN our gov't through their lobbyists and cash contributions.

These are the people who have orchestrated public policy in this country directly and indirectly for at least 30 years.

Now the suggestion comes up that the gov't that they bankrupted might actually expect them to pay for it, and a slew of people, none of whom are actually part of this top 1% group, start whining about what's fair and unfair.

gyardley3• 16 years ago

America's population is over 300M. Do you really think 3MM+ people all 'own the government' as a collective? Do you really think 3MM+ people are responsible for bankrupting the government?

I had a good year last year thanks to the business I founded, so I'm in this top 1% of taxpayers, but I have exactly the same political influence as everybody else. Less, since I can't even vote in this country. And instead of 'bankrupting the government', my cofounder and I worked hard and created some jobs in the middle of a recession.

codexon3• 16 years ago

It is because of tournament theory that people are requesting billionaires to be taxed more.

http://ingrimayne.com/econ/resouceProblems/Tournament.html

The differences between individuals (say top 10,000) in certain skills becomes negligible due to the sheer amount of people in the world. However, due to winner take all systems, it is possible for someone that works 0.01% harder or luckier to take 100% of the reward. This is why it is possible for wage disparities to increase beyond ratios of 1000 to 1 without someone having to work 1000 times harder.

The reasoning behind increasing the tax rate on the super wealthy is for several reasons

1) It is easier to accumulate money the wealthier you are. This creates a negative incentive for the super rich to work as hard since it becomes easier to simply buy out competition and form monopoly status. Or crush everyone else due to economies of scale rather than true innovation.

2) This conundrum is well known in many companies where they try to pay their employees as much as they can, but not too much, or else they retire early. If you believe in the mantra that the richest people are the most productive, then it is obviously in society's best interest to keep them productive.

3) The more percentage of total wealth you have, the more US infrastructure you use and rely on. For example: Exxon heavily relies on the US military and government sponsored roads. Tech companies like Google and Microsoft heavily relies on the nationalized electric grid, subsidized education, the invention of the Internet, and subsidized telecoms that allowed people to use it. The average Joe does not have as much to lose if these tax subsidized services were to disappear tomorrow.

4) The tournament theory I mentioned above. The vast differences in wealth are due to situation or luck, and not because someone truly works 1000 times harder than you.

brg2• 16 years ago

In reality humans are not so different from each other in terms of production and skill...

Perhaps you simply don't have experience, but this is certainly not true. There are clear deviations from the norm. Once you start your own business or start to manage groups this becomes quite clear.

gnosis3• 16 years ago

"Every single billionaire can "afford" to be taxed at a 99% rate."

And they should be taxed at a 99% rate, if not higher.

Leave them with a million dollars, tops. That's fair.

d2viant• 16 years ago

...and what will that accomplish?

j_baker• 16 years ago

"The bigger question: is it in any way fair, just, or moral to tax society's most successful more heavily just for being more successful?"

No, it's not. However, it is fair to tax the people who have the most. Determining your income for the year is just a heuristic, and an inaccurate one at that. However, if you can come up with a 100% fair way to determine whether a person deserves their income based on a tax form, I'd suggest running for Congress or the Presidency.

But until that happens, we're just going to have to settle for an imperfect system. Personally, I like the idea that if anyone is treated unfairly by our tax system, it's the top 3%. I think our tax system is fair to the other 97%. And that's quite an accomplishment.

eplanit• 16 years ago

Why is Politics such a predominant topic on HN?

steveplace• 16 years ago

The US federal income tax exists to raise revenue for the federal government. It does not exist to level the playing field, make things fair, or to hinder high-producers.

This whole debate is framed wrong, on both sides.

uptown• 16 years ago

Why does a married couple still have the same 250k threshold? Does marriage immediately cancel out all the expenses one person in a relationship might encounter?

rbranson7• 16 years ago

I make what I consider a middle class salary (around double the household income in my area), and I'm pretty sure I can afford a tax hike. While I would not be terribly happy about it, it's not going to hurt me. I'd say for most of the real middle class, who haven't mortgaged themselves to the hilt, a tax hike of a few percent will cut into their discretionary income, not anything truly needed. I'll have to wait another two weeks to get my 52" big screen television. Oh no.

elsewhen• 16 years ago

is affordability really the unit-of-analysis that you want to use to design (or make tweaks to) a tax system?

lets assume that $50k per year gives a comfortable lifestyle to a person. anyone earning less than 50k per year cant afford to pay taxes and therefore doesnt have to. anyone earning more than 50k can certainly afford it, so they pay the amount needed to get there income to 50k. so a guy who makes 60k pays 10k per year, and a guy who earns 1MM pays 950k.

do you think entrepreneurs would start businesses in this environment? sure, some would because they are doing what they love... but what about all those boring businesses. do you think the dry cleaner LOVES to wash other people's clothes? do you think the guy who started 1-800-GOT-JUNK loves other people's trash?

among other things, you need to think about incentives (and the killing of those incentives) when you devise a tax system.

garethm• 16 years ago

This reminds me of the article a few years ago that indicated that Warren Buffett had a lower effective tax rate than his secretary, even though he made heaps more. http://www.timesonline.co.uk/tol/money/tax/article1996735.ec...

byrneseyeview• 16 years ago

That was because he's counting capital gains. Capital gains are the tax you pay based on the price of a stock, which is based on the net present value of the company's dividends (taxed at 15%), which are paid out of its profits after taxes (35%). So it looks like the taxes he's paying on the extra earnings of Coca-Cola are about 53%.

At least he doesn't pay FICA taxes on that. On the other hand, the capital he invests does allow companies to hire more people, who do pay taxes.

The utility-maximizing way to tax Mr. Buffett is at 0%. He'll invest it effectively, it will grow the economy, more jobs will be created, and we'll end up with more wealth to squander through silly redistributive schemes.

rbranson7• 16 years ago

Nice try Ronnie, but I highly doubt Mr. Buffet is ignorant enough to take profits he intends to re-invest as income. These likely stay within a holding corporation that re-invests this money and does not pay taxes on the gains. This is the way the system exists now and the way it should work.

grandalf3• 16 years ago

Most people in the US pay no taxes at all. The $250K threshold hits lots of hard working professionals and entrepreneurs who are by no means "rich" and who work extremely hard.

I'd argue that people earning $250K who are paying off loans and working 60+ hour weeks cannot afford it... and that taxing them is a horrible policy idea, no matter how well it resonates with voters who themselves pay no taxes (or people like the author who live in Westport CT).

gnosis3• 16 years ago

"Most people in the US pay no taxes at all. The $250K threshold hits lots of hard working professionals and entrepreneurs who are by no means "rich" and who work extremely hard."

Let's see now... when the median family income in the US is $40,000 per year, an individual making $250,000 per year is undoubtedly rich.

They might not be super rich, or even very rich. But they're rich.

grandalf3• 16 years ago

What about differences in cost of living? Is a maid in San Fran who earns $80K per year rich?

grandalf3• 16 years ago

Also, a family (two adults, 2 children) earning $40K per year will pay next to nothing in taxes. This is why such people tend to support our oil wars, they are costless to them. Both political parties like to keep it this way.

kyro• 16 years ago

This is one thing that never fails to irritate me: the stigma against the wealthy. It's almost as if all the energy, effort, time, sacrifice, and risk usually taken by many who are now wealthy are completely overlooked, making them look undeserving of their money as if they were born with golden spoons in their mouths. My father immigrated to America from Egypt in the mid-80s shortly after he graduated medical school in Cairo to find a better living. When he got here, he went to school, took a graveyard shift as a security guard and worked at a gas station to make ends meet. He moved to four or so different states to join various medical programs, etc, and finally settled here in southern California as a fairly successful physician who makes $250,000+ a year. Knowing all the work that he's put into creating this life, my blood boils when I read headlines like these as if someone like my father doesn't/didn't work as hard as others to make a living. He is one example, and there are myriad of foreigners who have done the same, not to mention startuppers who literally put EVERYTHING on the line to increase their chances at success. To say that these types of people can just afford it as if it were some obligation is idiotic and infuriating.

charlesju• 16 years ago

Here is what this author doesn't understand. People who make much more than $250,000 a year rarely let that money touch income taxes. The tax game is all about creating trusts, funneling through shelter companies, long-term capital gains, expensing the heck out of everything, etc.

bwh23• 16 years ago

Doctors, lawyers, and other paycheck people making $250k pay around the 35% rate. They get hit hard. Meanwhile, professional investors earning the same amount pay the capital gains rate of 15%, which is less than a paycheck family earning $80k. I don't want paycheck people to pay more taxes, I want the capital gains rate to go up.

ryanwaggoner12• 16 years ago

Yeah, let's disincentive the wealthy to invest in new companies that create jobs during a recession. Excellent.

I much prefer the idea floated to ditch capital gains altogether for small companies.

bwh23• 16 years ago

So you should be in favor of dropping capital gains to 0% then for everyone, right? Probably income tax too for that matter, because that discourages people from working, and unemployment is the last thing we want to have.

pdxgene• 16 years ago

Somewhat counterintuitively, raising the capital gains rate actually tends to decrease overall capital gains receipts. This is mostly due to the fact that capital gains realizations are some of the easiest to time, and if advantageous, defer.

This is a natural consequence of a convoluted system with complicated rules that encourage schemes. Another sad consequence of this system is that, as with our managed health care system, it creates a massive amount of regulatory and managerial overhead.

The engineer in me would love to see a flat tax, and the resultant elimination of layers of bureaucracy, like the chopping out of so many lines of unnecessary code. Dare to dream...

hexis• 16 years ago

In the words of Betty Draper, Daniel Gross should stop counting other people's money.

rms• 16 years ago

http://wiki.lesswrong.com/wiki/Politics_is_the_Mind-Killer

rglullis• 16 years ago

Back-of-the-envelope-calculation.

Given:

- USA population: 300 million

- percentage of households that make 250k+ in a year (according to the article): 2.1%

If we assume that we have 2 people per household, that's 150 million * 0.021 = 3.15 million "households" making US$250k+.

Assuming that the average income of the US$ 250k+ group is much larger than the bottom, something close to US$ 1 million, and assuming that there is a tax increase will take 5% of your income from your pocket. In practice, we are saying that we are taking 50 thousand dollars of each household that makes more than US$250k.

Using these values, the government would get 3.15 million times US$ 50 thousand = 157.5 billion dollars from this tax increase.

According to wikipedia (http://en.wikipedia.org/wiki/2009_United_States_federal_budg... : the net deficit for the 2009 budget was 407 billion dollars.

I know that are tons of other things in a serious model: flow of money and such. But even so, I wonder if there is any kind of tax increase that would actually be able to fix the deficit.

ajross• 16 years ago

The 2009 deficit is an outlier, because it's being sampled immediately after a sharp fall in revenue. In fact the budget was (briefly, before tax cuts and two wars threw it out of whack again) balanced as recently as 2001. There's no reason to expect that it's an impossibility.

But no, you can't enact a sudden tax increase (or spending cut) in a down year and expect it to close the gap. Budget planning is done over decade-scale timeframes.

Also note that the deficit is bad not because its immediate cost is unbearable but because its current scale is unsustainable. The marginal cost of any extra borrowing is actually quite low; the US Federal Government pays very low interest rates on its debt (check the federal bond rates for current numbers), and no one is suggesting an inability to pay this year's debt -- it's a drop in the bucket. So the goal is a steady reduction of deficit spending to a sustainable level.

gyardley3• 16 years ago

People who make $250,000 or more a year can afford to pay more for a lot of things. But if you tried to charge one person more for an identical candy bar or television or movie ticket just because they make more money, everyone would instantly see this as unjust. Why should government services be any different?

I'd be a lot more content with differential tax rates if the money I'm saving to start my next business - and create jobs for Americans - was exempt. Every dollar I give the government is a dollar they're going to spent a whole lot less efficiently than I will.

SamAtt3• 16 years ago

Your example is bad because people making over $250,000 generally don't use most Government services. A better example would be if the person came in to buy a TV and you forced him to buy a TV, DVR and surround sound system for the guy standing behind him in line.

rbranson7• 16 years ago

This assumes that the only way in which you benefit from Government services is by directly using rarely-used entitlement programs (welfare, etc). The rich certainly benefit from an educated workforce that the government bankrolls, roads to drive their cars on, police & fire protection (which is often significantly better in more affluent areas), homeland security, etc.

idoh2• 16 years ago

That's called a consumption tax, which has a lot of intellectual advantages over the current regime.

Income = Consumption + Savings. Right now we tax income, but it's possible to tax consumption instead. That would encourage more saving and less consumption, which is probably a good thing for the country (but probably won't happen any time soon because in the short run businesses wouldn't stand for it).

Poiesis• 16 years ago

Would more saving and less consumption be good for the country? I'm not saying it's a bad idea for individuals--it's what we do personally--but it seems like the economy as a whole would stagnate based on my completely unqualified armchair economist opinion.

Mz• 16 years ago

"Soak the rich" doesn't work. I recall seeing an interview with Ronald Reagan when he was a movie star. He stopped working after a certain point each year because he was taxed so high that he would rather have the free time than more income. Whenever they create luxury taxes, such as on yachts, the rich just put off getting a new yacht. Who really suffers? The working stiffs who build boats. They get laid off.

I don't know what the answer is. But, as I understand it, punishing people who have the most leeway to make other choices pretty consistently fails to get the desired result.

gnosis3• 16 years ago

Better to just take their money away rather than tax them on their income or even their consumption.

People who make $250,000 or more a year can afford a tax hike.

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