50 years of tax cuts for the rich failed to trickle down, economics study says

https://www.cbsnews.com/news/tax-cuts-rich-50-years-no-trickle-down/

by NiceWayToDoIT • 6 years ago

134 154 6 years ago

mikestew3• 6 years ago

Perhaps I'm having a Mandela Effect moment, but hasn't "trickle down" been debunked before this study...repeatedly? Not just "no shit", but actual studies and stuff? Regardless, Will Rogers is credited with the phrase "trickle down" to refer to supply-side economics, so it has gone on longer than 50 years. Mr. Rogers also did not mean the turn of phrase to be complimentary.

Someone• 6 years ago

Indeed. Wikipedia (https://en.wikipedia.org/wiki/Trickle-down_economics) say he used it in 1932, and says the idea is even older (“leak through” in 1896; “If you feed the horse enough oats, some will pass through to the road for the sparrows.” in the 1890s)

mikestew3• 6 years ago

“If you feed the horse enough oats, some will pass through to the road for the sparrows.”

Boy, an accurate assessment of supply-side economics if there ever was one: "let the plebs pick through our shit to see if we left any excess for them".

commandlinefan• 6 years ago

If you feed the horse enough oats, some will pass through to the road for the sparrows

Funny enough in that analogy: you're feeding the horse because you care about its well-being and it's doing something helpful in return, whereas the sparrows are actually a nuisance providing no value to anybody and just taking without giving anything in return.

pmiller2• 6 years ago

It has, but half the country still hasn't gotten that message.

ardy42• 6 years ago

It has, but half the country still hasn't gotten that message.

That's at least partially because the wealthy have the means to hire lots of smart people to create sophisticatedly misleading propaganda for them, and make sure it's widely disseminated and influential.

imtringued• 6 years ago

It's just an excuse to justify selfish tax policy that favors the wealthy. It obviously doesn't work because the wealthy don't have to invest into domestic jobs. They can also use their money abroad. If you give them more money they are just going to spend more of it outside your country.

The opposite is also true. The vast majority of consumers spend their money domestically. Yes the products they buy are often imports but in many cases a big chunk of the money goes to cashiers, delivery drivers and so on.

Of course I am simplifying this a bit. In theory the roles can switch and business owners spend more domestically and consumers spend more abroad but as it is right now the rich just invest into Chinese businesses or production capacity in China. Think of companies like Tesla building factories in China.

pmoriarty2• 6 years ago

"It obviously doesn't work because the wealthy don't have to invest into domestic jobs. They can also use their money abroad."

They can also just hoard most of it and pass it on to their descendants -- this is how you get dynasties. Tax havens and creatively constructed foundations are another way of making sure the government never gets ahold of their money.

throwaway8943452• 6 years ago

In fairness, we could and should also charge adjustments for goods and services produced that don’t meet some standard for labor and environmental standards so American companies can compete (for example, a border-adjusted carbon tax). Similarly, end the subsidies that allow for cheaper shipping from China than a neighboring state.

If anything, I would expect “trickle-down economics” to have reduced globalization, since it allows for cheaper American labor. Of course this doesn’t mean we should embrace trickle down policies, but that we should make sure we prevent jobs from flooding overseas as we dismantle them.

Florin_Andrei6• 6 years ago

hasn't "trickle down" been debunked before this study...repeatedly? Not just "no shit", but actual studies and stuff?

Regardless, it's still the central dogma of the politics of a large part of population.

rbanffy4• 6 years ago

We desperately need to educate these people because they'll continue to vote against theirs and our interests.

throw0101a• 6 years ago

Perhaps I'm having a Mandela Effect moment, but hasn't "trickle down" been debunked before this study...repeatedly?

The idea has been around in some form or another for a long time:

* https://en.wikipedia.org/wiki/Trickle-down_economics#History...

The most recent reincarnation was known to be not very good economics from the get-go:

What I want to talk about is when, exactly, the GOP went over the edge. Obviously it didn’t happen all at once. But I think the real watershed came in 1980-81, when supply-side economics became the party’s official doctrine.
I’m not sure, even now, whether people who aren’t involved in economic policy discussion understand that supply-side wasn’t a doctrine like monetarism or even real business cycles — ideas I may think are wrong, but which had and to some extent still have significant support from professionals in the field. Supply-side economics never had any evidence behind it; it never had any support in academic research; it barely even had any support among economic researchers and forecasters in the business world. It was and remains crank economics pure and simple, with nothing going for it except political convenience.
Yet 35 years ago the GOP was already willing to embrace this doctrine because it was politically convenient, and could be used to justify tax cuts for the rich, which have always been the priority.
And given this, why should anyone be surprised at all the reality denial and trashing of any kind of evidence that followed? You say economics is a pseudo-science? Fine. First they came for the economists; then they came for the climate scientists and the evolutionary biologists.

* https://krugman.blogs.nytimes.com/2016/07/18/the-gops-origin...

He has an entire section on this in this recent book Arguing with Zombies, along with how the GOP are worried about deficits and debts when they're out of office, but then don't once they're in power (e.g., tax cuts in the December 2017 budget):

* https://wwnorton.com/books/9781324005018

* https://www.worldcat.org/title/arguing-with-zombies-economic...

Diederich• 6 years ago

George Bush, Sr., characterized Reagan's economic paradigm (Reagonomics/supply side/trickle down/etc) as "Voodoo economics": http://news.bbc.co.uk/2/hi/americas/270292.stm https://www.youtube.com/watch?v=o8hnM6xNjeU

partiallypro• 6 years ago

"Trickle down" is an economic slur, it's not something economists believe. It's just what some people call a certain policy set.

jariel2• 6 years ago

The term they use is 'supply side' economics - meaning, you support businesses with tax cuts, subsidies, Quantitative Easing, then the 'core' economic mechanisms are healthy, people get hired (i.e. trickle down).

As oppose to 'demand side' i.e. give tax cuts or money to the poor - they spend it, the economy grows.

pkaye• 6 years ago

Wouldn't trickle up economics work better? Poor people have more unmet needs and more likely to spend any extra they get into the economy.

FilterSweep• 6 years ago

That’s effectively what Nick Hanauer has been saying more recently but I believe we are too far gone at this stage.

Florin_Andrei6• 6 years ago

I believe we are too far gone at this stage

When irrationality and straight-up lying are so entrenched, you wonder what it would take to shake up the system.

The only thing I see is some major catastrophe, like a meteor strike or something on that scale.

redisman• 6 years ago

The US government is very capable of handing out $1200 checks to everyone as we have seen. It is also extremely popular with the people. I mean I guess the only impediment is courageous politicians but that might be a large obstacle.

I wonder if they gave out the $1200 checks every year and funded it by taxing the top brackets, that would cause a large surge in consumer spending (mostly on essentials but also on luxury goods as you go up the income bracket).

dragonwriter4• 6 years ago

Wouldn't trickle up economics work better?

It depends on what you mean by “work better”.

If your goal is to further enrich the capitalist class while building a quasi-religious doctrine that results in failure of the working classes to see progress resulting in popular pressure to even further enrich the capitalist class, no.

If you have a different goal than the people promoting trickle-down theory, then, sure, maybe.

AnimalMuppet2• 6 years ago

You could think of UBI as "trickle up". The money starts at the bottom, not at the top.

Mind you, I'm not necessarily sold on UBI. But I think this is an interesting way to look at it.

marcosdumay3• 6 years ago

Isn't the answer of this one known since the time of Keynes?

That's basically what pulled the rich countries out of the Great Depression.

metiscus2• 6 years ago

There is ongoing and significant debate about exactly that question.

Here are some links from across the spectrum of opinion.

https://www.nas.org/blogs/article/ask_a_scholar_did_the_new_...

https://www.theatlantic.com/ideas/archive/2019/03/surprising...

https://fee.org/articles/fdrs-folly-how-roosevelt-and-his-ne...

vinhboy• 6 years ago

I've been trying unsuccessfully to sell this idea to my cohorts with regards to the stimulus check. My argument is, giving poor people money is a guarantee win for the community, because poor people live paycheck to paycheck and that money will be spent immediately.

No one buys my idea because it's always something like, "I don't trust them", or "why does that lazy guy deserve any money"....

I am not sure how to win that argument.

mikestew3• 6 years ago

Win? You're not going to win that argument because it isn't set up for you to win. The argument boils down to "they are undeserving". Good luck convincing someone that the person in question is, in fact, deserving because the goal posts will just get moved. Okay, go with something along the lines of "people shouldn't starve in the streets, deserving or not". And you'll be shocked at what a fellow human being will respond with.

You're basically asking, "in a time of crisis, could we quit being dicks to each other if only for a little bit?" And the answer from many will be a resounding, "nope".

apta3• 6 years ago

Islam solved this problem a long time ago. It has a built-in "charity tax" called Zakat whereby a portion of people's wealth (as long as they make more than a minimum threshold) is donated to charity each year. The portion depends on what kind of wealth it is (e.g. for gold and silver have a different rate from produce, the former being only 2.5% per Hijri year). This ensures lifting up the poor and stimulating the economy by discouraging people from hoarding wealth, yet, it is not a socialist system because it heavily discourages people from being needy and relying on others. There were many rich and wealthy Muslims across history, and it is not frowned upon one bit.

It is historically established that there was a time, when everyone committed to paying their Zakat, that there were no more poor people left to take it!

hilbert422• 6 years ago

This fact was obvious long before 50 years ago! For starters, just go back to Marx and Engels in the 1840s.

The longstanding problem with that trickle down argument is and has always been that the rich have always had the money to: (a) effectively lobby politicians into accepting that viewpoint, and or (b) becoming politicians thus enabling them to enact laws that benefit themselves directly, and (c) to purge or whitewash arguments/statements to this effect from history (such as my comment here) by the effective use of propaganda. Ordinary people simply don't have the financial resources to effectively counter these self-serving actions.

It really is time we stopped mucking about and called this economic nonsense for what it really is—a charade or justification that only fools the gullible.

For instance, we could begin by abandoning the Nobel Prize for economics, this would bring the artificially-propped-up status of the Milton Friedmans of this world back down to earth.

AnimalMuppet2• 6 years ago

And the Paul Krugmans.

hilbert422• 6 years ago

Yeah, unfortunately that whole trade matter got well out of hand before any of us realized it.

NiceWayToDoIT2• 6 years ago

This is not a new thing for those who are fighting for better wealth distribution, but despite raising many voices in UK, politicians who create policies still use the same excuse to pump huge amounts of cash to the rich people. In that regards maybe this study is an important step toward change.

eloff• 6 years ago

I'm really curious how many of our democracies fail in this specific case. There aren't a lot of wealthy people, so if politicians are pandering to the majority, this is the wrong call. It's well known not to work for a long time, so logically it's also the wrong call. Are most politicians wealthy? Is that why they seem to overly protect the interests of this group over the rest of the population? Straight up self-interest or corruption?

slindz• 6 years ago

From my perspective, it costs an awful lot of money to run for office. If the only way to reach office is to convince wealthy people to fund your campaign, it shouldn't be a surprise if their interests wind up getting preferred treatment.

Florin_Andrei6• 6 years ago

The way church and state are supposed to be separate (lots of potential comments here, but let's move on), we should have a separation of money and politics. And for reasons that are quite similar.

It's a public office, where public servants work, for the good of everyone, not for personal enrichment. It's a job just like all the others. It should not be a place where oceans of cash keep sloshing around.

No more lobbying. No more private funding of politics.

Florin_Andrei6• 6 years ago

if politicians are pandering to the majority, this is the wrong call

Unless you somehow convince the majority to vote in a way that is clearly harmful to them, but useful to you and your clique. Then you only need to be "pandering" to their engineered beliefs, even re-enforce them while you're at it. Which of course is exactly what's happening.

It's well known not to work for a long time

It only needs to last for the active career span of the politician.

adamredwoods• 6 years ago

I have an arm-chair theory that pure capitalism eventually evolves into plutocracy. Some cultures/countries define a high monetary value as success, so humans naturally look to success as characteristic for leaders.

marcosdumay3• 6 years ago

Are most politicians wealthy?

I suggest you look this one up.

Where politicians are not wealthy, taxing rich people happens more often. But I don't think the causality goes the way you imply there.

sunstone• 6 years ago

It did trickle down but to China, Vietnam, Indonesia and Silicon Valley.

konfusinomicon• 6 years ago

Now that the rich are used to lower taxes, if the government raises them won't the extra costs they incur just end up being passed down to the consumer via higher cost of goods/services from the businesses owned by said rich people?

aaomidi• 6 years ago

This is a good thing. In fact if this reduces consumption because higher priced we've won a major battle.

However wages have stagnated, which means whatever we've done so far hasn't helped consumers at the end. So at this point I'd take lower consumption as a win.

baron_harkonnen• 6 years ago

Assuming that simple model was correct, wouldn't that then mean that in order for the consumer to be able to afford such goods and services the would, in turn, have to be paid more?

It's not like the American consumer is a tremendous store of surplus value, especially given that they have effectively no saving on average and rising debt.

If the wealthy conspire to charge more because of income lost to taxes, then the labor class will simply have to consume less or somehow make more. As far as the former goes, historically capitalism doesn't do great when it decreases the material conditions of workers (which is what forcing decreased consumption leads to).

standardUser3• 6 years ago

You can't just charge more because you're mad and want more money, at least not if you expect to continue to be competitive.

bearjaws2• 6 years ago

Good point.

The teaching of supply vs demand vs cost of production has really let our society down recently.

Very few people seem to be aware that non-essential items are priced based upon what people are WILLING to pay for it, not what it costs to produce.

This results in comments like "well the price for XYZ will just go up!", when in reality its much more complicated.

belltaco• 6 years ago

What's stopping them from doing that right now and pocketing the extra money? They're not in it for charity, if they think they'd make more money, they'd do it already. It's the supply demand curve they're trying to optimize for.

jacques_chester5• 6 years ago

This problem is called "the incidence of taxation" and it is well-studied. A great deal of debate about tradeoffs between various sorts of tax rest on how they distribute the incidence of taxation.

The larger point is: sometimes a tax increase gets passed on, sometimes it isn't.

durnygbur2• 6 years ago

The rich prefer to hire armies of accountants and lawyers to design the most hermetic pipeline funelling out everything they consider to be an excess. There is not a single droplet dropping, how could anything tricke down?

johndevor2• 6 years ago

Cars, computers, cell phones, rockets to mars, etc... all exist because rich people bought the super expensive first versions or funded their development. We all benefit from those things greatly.

pwinnski2• 6 years ago

You seem to radically misunderstand the history of cars, computers, and cell phones, and I fail to see how we're all benefiting from rockets to mars--which don't yet exist--at this time.

bearjaws2• 6 years ago

A lot of early model cars were very affordable, the first iPhone was $600, nobody who is poor has concerns with Mars...

This really isn't a compelling case.

bovermyer• 6 years ago

That's false equivalence. The luxury goods market does not equate to the general economy, nor wealth distribution.

NicoJuicy• 6 years ago

Trickle down economy is about paying essentials to other businesses?

That's a first

standardUser3• 6 years ago

Sure, having a few million bucks kicking around lets a small class of people contribute to the commercial development of some types of products.

Having a few billion dollars kicking around does not yield such benefits.

jacques_chester5• 6 years ago

We also greatly benefit from the enormous public R&D spending on these products over several decades, a lot of it for military purposes.

The super rich can contribute to public R&D through taxes.

durnygbur2• 6 years ago

I disagree. The rich are interested in the premium segment of goods. The general public would have no benefit from Rolls Roys, Bugatti cars, from private luxury jets.

sparrish• 6 years ago

"armies of accountants and lawyers" fed their families and bought houses and cars and...

jariel2• 6 years ago

Jobs. Before COVID, the US had historically low unemployment and high material standard of living (despite asset share growing in the 1%).

Even accounting for different ways to count unemployment, the US, generally a somewhat lower tax jurisdiction, tends to have lower unemployment and higher salaries. (Healthcare of course is the big ticket item generally not well accounted for in the comparisons)

grenoire• 6 years ago

Well they gotta' trickle down something, it just has to be worth the investment to save more wealth! /s

11thEarlOfMar4• 6 years ago

This is only tangentially on topic, but I genuinely wonder about this. When people state that they want the wealthy to pay their fair share, the first two questions I have are, what constitutes wealthy and what constitutes fair?

Let's take a specific person as an example of wealthy (let me know if you don't agree), and I'd be grateful to hear your thoughts:

Wealthy Person X:

- CEO, 55 years old, University of Illinois grad in bio-chemistry, put self through college working

- Works 60 hour weeks, most Saturdays, some Sundays

- $1,500,000 salary + stock benefits

- Net worth $8,000,000

What is X's fair share in Federal Income Tax?

soared• 6 years ago

This doesn’t seem like a question inviting genuine discussion. Tax laws don’t take into account how hard someone works, where they went to school, or a taxpayers character.

Unless your argument is that taxes should be based on factors outside of income/etc, it seems like you might be trying to bait people with some version of “Look how hard Steve works - you can’t possibly support raising taxes on him.”

umvi4• 6 years ago

I think it's a valid question though.

In my mind, the closest thing to a fair tax law is one that applies evenly to everyone, like UBI. Consider a flat 10% income tax applied evenly regardless of socio-economic status. If you made 1M, then you pay $100K. If you made $10K, you pay $1K. If you made $0 or less, you pay 0. That's it.

In some senses that is very fair - everyone pays 10% of their income, no exceptions. It's this ultra-convoluted labyrinthine system of laws/exceptions that has allowed the wealthy people and companies to find so many loopholes. In my mind, just like simple software code is harder to exploit than spaghetti code, so simple laws are harder to exploit than spaghetti laws.

profile532• 6 years ago

I think that’s exactly what the parent commenter is saying, but I don’t think it is wrong to discuss per se. Consider 3 people:

- Morgan. Worked 80 hour weeks for 40 years developing treatments for childhood cancer. Runs a charity supporting orphanages in their free time. Net worth: 8 million, income: 1 million

- Sam. Started the largest pornography empire in the world and works as the CEO. Accused of child sex trafficking on multiple occasions, but no proof. Net worth: 8 million, income: 1 million

- Jordan. Their great grandparents started a mining company and they inherited a trust fund. Never worked in their life. Net worth: 8 million, income: 1 million

I’m willing to bet people would have value judgements on how much each person should pay in taxes. People do tie moral, emotional, or ethical considerations to what they consider fair. I personally believe these three people should be taxed almost the same, as the value judgements should have an impact elsewhere. I think estate/wealth taxes would be the only case where there should be a divergence, as they would only apply to the third person. What do you think?

ogre_codes2• 6 years ago

If he makes $1.5m/ year and his net worth is only $8m, he's not very good with money.

My feeling on taxes is likely overly simple. Take the median price of a home in the area and divide it by 4. If people make less than that, they shouldn't pay any taxes. Then people should pay flat rate for every dollar above that.

11thEarlOfMar4• 6 years ago

That's interesting.

The median home price in the US (it varies dramatically by region, I need to simplify first) is $295,000. Divided by 4 is about $74,000.

The median household income (using household since you're using house prices) is $69,000.

The actual numbers would need to change for this to work, maybe it needs to be 1/10th the median home price as the threshold, for example.

But it's interesting to think through the impact this type of approach would have on home prices. I'm confident the tax rates and taxable thresholds could be worked out to generate the revenue needed, but to what extent would people be incentivized to move to areas with lower home prices?

Taking an extreme example, the median home price in Santa Clara County is $1,395,000. If we use the 10% threshold, families would not pay taxes if their household income were below $139,500. The median household income is $124,000.

Income and housing prices are not linearly corelated, so it would need some type of non-linear scaling. But at the heart of it, housing is generally the greatest family expense and perhaps it makes sense to use that in the approach to taxing income. Come to think of it, perhaps that's in effect what the mortgage interest deduction does.

t-writescode3• 6 years ago

Ignoring edge cases like selling a house, I would argue ‘fair share’ is for capital gains tax to have brackets that eventually equal regular income tax brackets, such that a CEO that makes $1 / year and 4 million in stocks, if he sells all 4 million in stocks 2 years later, isn’t paying only 15% income tax.

dlp2117• 6 years ago

Your base point is valid, your example is at best incomplete. Stock compensation is taxed as regular income. The appreciation of the stock afterwards would be taxes as cap gains.

hannob• 6 years ago

There's no objective, fair way to answer that question. This is something that can only be answered by a societal discussion and hopefully some democratic way of decision.

I'm not sure this is what you're trying to do, but it sounds a bit you want to imply that because there's no objective measurements of "fairness" we shouldn't even try.

FWIW I think your question doesn't give me enough information to form an opionion, because the tax should depend on needs of the authority that does the taxing (e.g. if there's an obvious lack of healthcare in a country that causes many people to die needlessly - that'd be a good reason for higher taxes).

NiceWayToDoIT2• 6 years ago

In UK/US (probably many other countries) issue is that those that many who are even wealthier for similar kind of income pay less taxes than nurses on $30,000 a year, because they know how to hide income in number of tax loopholes made just for them. On top of that government gives them not just tax reliefs, but additional cash so they can invest and on top of that banks give them much better terms for credit...

[1] https://www.independent.co.uk/news/uk/politics/blair-s-compa...

[2] https://www.bloombergquint.com/politics/trump-returns-show-h...

brmgb• 6 years ago

That's more than thirty times the average US salary so at least thirty times the average amount of taxes paid by a person - a bit more would still be fair as utility of money decreases quickly past a certain point - and different taxes on the stock benefits and capital gains.

The amount of hours someone works is completely irrelevant. Paying taxes is not about whether you deserve the money nor is it a punishment. It's entierely about how much you can contribute.

kmlevitt• 6 years ago

To answer that, let’s look at what his rate would have been during America’s greatest expansion of prosperity, when possibly more people of humble means were pulling themselves up from their bootstraps than at any other point in history. Let’s go with say 1960 and adjust for inflation.

https://web.stanford.edu/class/polisci120a/immigration/Feder...

1,500,000 in 1960 dollars is about 180,000. Which means his maximum tax rate would have been 87%

My guess is that number will shock and outrage people. Even I think that’s too high. But the point is history already shows us that all those arguments that that rate wouldn’t result i. The destruction of incentives for Americans to work harder, or lower overall quality of life. For example that tax revenue could pay for funding college so that people don’t have to take on crushing debt just to go.

apta3• 6 years ago

Except that is a misconception because no one paid anywhere close to that 87% rate back in the day. The rich will always find loopholes and deductions to lower their tax rates.

pmoriarty2• 6 years ago

I favor a wealth tax over an income tax, as the wealthiest individuals tend to make only a tiny fraction of their money through income.

Start at 50% tax on wealth exceeding one million dollars, and raise it by 1% for every million above that, adjusted for inflation.

dlp2117• 6 years ago

More than what they are paying today. I'll also remind you that the tax burden on every marginal dollar is the same for everyone. That is, that CEO pays the same amount of tax on their first taxable dollar as I do irrespective of what our total income is.

With that said, there is no reason that the top marginal tax rate shouldn't be 90%, and that should apply to incomes in 10's of millions. And the marginal tax rate should progress up from the current 37%@$622+k income to 90% at say $25MM. The CEO in your example's marginal tax rate should be coming in probably in the 45-50% range. That's marginal, not effective.

Capital gains tax should be eliminated and cap gains should be counted as income.

umvi4• 6 years ago

there is no reason that the top marginal tax rate shouldn't be 90%

But why should the government get to essentially steal 90% of wealth generated by a person above an arbitrary threshold? Because "there's no reason someone needs that much money"?

I would argue that if you do this, you'll get less things like SpaceX and Tesla, which required a person with much more than 25MM to decide to create them.

wing-_-nuts4• 6 years ago

put self through college working
Works 60 hour weeks, most Saturdays, some Sundays ...

I don't give a damn about the 'pull yourself up by your bootstraps and work hard' virtue signaling.

Half. He should pay half. So should everyone else above 400k / yr. The rich are able to succeed by virtue of the fact that we have schools, roads, other infrastructure. If you're in the top 1% of income, you should pay in the top 1% of taxes to help pay for all that.

Mad about that? Maybe we should stop spending ~ 700B / yr on defense. We're surrounded by two friendly nations and large oceans. There's zero chance of conventional total war against Russia or China, and we can't defend against a nuclear exchange. Our military is a giant welfare program.

RhysU• 6 years ago

Why is $400K the morally correct number?

shans• 6 years ago

And while we are at this, I am very interested in another thought experiment. * Person 1: income $400k per year, lives in California -- must spend $1.5M+ to afford a 4 BR home for a family of 4 -- must spend $15 per hour on child care workers because of minimum wage laws -- spends an average of $20 per person per meal, because of all the costs baked into the price of goods and services in the state -- spends 10 - 12% on state income tax but does not receive any direct benefits from state programs because of their income level (the only point being about the additional expense of it that is not a direct benefit, not that the state tax is unfair). -- spends 9% of all goods purchased on sales tax

* Person 2: income $400k per year lives in TX * spends $700 - 800k on an equivalent or better home * spends an average of $12 - 15 per meal per person * can spend $10 per hour on child care workers because of minimum wage laws * spends 0% on state income tax * spends a 6 - 7% on all goods purchased on sales tax

Ignoring things like what the specific min wage levels should be, etc, etc, is cost of living something that should show up in "fair tax" owed?

If the answer is no... I have a hard time seeing how any specific tax level could be considered fair (even after the argument of "well people should just move to another state").

If the answer is yes, then I have a hard time imagining how any federal income tax system could achieve the goal of "fairness".

And perhaps getting rid of the income tax altogether (perhpas replaced by Universal or partial BI + national sales tax as one idea) would result in a much faire / progressive system.

otikik3• 6 years ago

The answer is always the same: a gradual tax on his income. So the first, say, 40k he pays is taxed at, say 10%. The next 60k at 15%. And so on. Don't concentrate on the numbers, concentrate on the concept: As brackets go up, the higher the taxed percentage. It never comes to 100% but it should be quite high after the first million.

Why I think this is fair?

Because it is no longer possible for people to "put themselves over" University by "college working". The group that Wealthy Person X belongs to has managed to extract a lot of wealth from the society, making it worse for everyone else. It's time to give back.

bluecalm2• 6 years ago

Except if you provide a useful service people want to exchange money for then you made society better off even if you don't pay any taxes ever. This is obvious yet so often missed by the "rich people evil" rhetoric.

If you think people are enriching themselves unjustly focus on fixing those mechanism instead of punishing those who make the world a better place for everyone around them.

11thEarlOfMar4• 6 years ago

I'm curious about the notion of becoming wealthy by extracting wealth. Here are four ways to increase one's wealth, which of the four is an extraction:

1. Earning a salary. Generally speaking, the larger the organization and the higher the position the higher the salary.

2. Investing in stock. The more a company grows, the more valuable the stock becomes, the more the investor's stock is worth.

3. Owning a home. The more people there are, and the more desirable a location is, the more valuable the property is, and the more the home is worth.

4. Owning a business. The harder and smarter your work, the more the business is worth. As the owner, that grows your wealth.

How do these methods of increasing wealth make it worse for other people? Or are you referring to another way? For example, a drug pusher who gets people hooked and then sells them drugs is for sure extracting. Or a monopolist who can charge any price he wishes is extracting if he chooses to exploit that position.

However, the majority of wealthy people are not of that type.

dennis_jeeves2• 6 years ago

When people state that they want the wealthy to pay their fair share,

What they mean is that they are jealous of the rich. They are want the rich to the equally poor through some cosmic egalitarian enforcer.

Anyway personal opinion - all forms of income tax is plain theft.

wing-_-nuts4• 6 years ago

Anyway personal opinion - all forms of income tax is plain theft.

By that rational, your using the infrastructure paid by those taxes is also theft right?

zthrowaway• 6 years ago

This will not be a popular thing to point out, but trickle down theory was never an actual theory. As far as I understand nobody actually advocates for this theory on a serious level. Plenty of contemporary economists such as Joseph Stiglitz, Alan Blinder, and Paul Krugman denounce this as a non-existant theory.

rbanffy4• 6 years ago

Politicians who use it to justify self-serving policies are not well reputed economists, but still define fiscal policies based on flawed economic ideas.

standardUser3• 6 years ago

Isn't "trickle down" just a politicized label for supply-side economics?

jonathankoren• 6 years ago

You're looking in the wrong place. It's proponents call it "supply side economics". It is a discredited theory, but it is still popular idea among many serious people in public policy.

If you want want a name of one (in)famous proponent, I'll give Arthur Laffer, inventor of the Laffer Curve. The curve says that as tax rates fall, government income goes up due to economic growth. You may have heard of this as, "Tax cuts pay for themselves." He famously invented the curve while drawing on a napkin. The napkin is now housed at the Smithsonian.

exabrial• 6 years ago

That's because the problem is Taxation, not tax cuts, not the rich.

If the USA Government was on Charity Navigator, it'd have a 0 star rating for overhead and delivery. I'm 100% for gutting taxes until we measure results with what we spend. Every business measures their spend for efficiency and every financially savvy person also calculates the rate of return. Why we willy-nilly throw gazillions of dollars at the government to watch it being funneled into your Senator's Buddy's pocket is beyond me.

If we're going to tax, the first step should be how to we measure the results.

inthewoods• 6 years ago

I broadly agree with you but measuring the results of some initiatives strikes me as very challenging. Two examples jump to mind.

I remember reading about early childhood education investments. When the program was completed they saw no measurable results so the program was cut. Researchers picked up the study years later and did follow-up and found dramatic improvements in the children that were a part of the program. Now if the measurement endpoint was set to the 2nd point, the program would have been viewed as a success, but we have, as a country, an incredibly short term view. It would be extremely challenging to find anyone in the US government that would have invested in the program if they were told the results wouldn't be known for 40 years (positive or negative).

The second example is military spending. This spend is done to keep us "safe" (others would argue it has other purposes e.g. to fund the military industrial complex or as a tool for stimulus). But if we take it at face value that military spend is supposed to keep us safe, what would be the measurable goal?

I get the need for goals, but I think you need to understand the limitations. And I think we also need to focus on long term planning in this country.

AnthonyMouse4• 6 years ago

The study compared countries that passed tax cuts in a specific year, such as the U.S. in 1982 when President Ronald Reagan slashed taxes on the wealthy, with those that didn't, and then examined their economic outcomes.

All of these studies consistently miss one thing.

Effective tax rates haven't really changed since before Reagan.

Prior to Reagan, the tax code was riddled with loopholes. Not like how it is now where corporations do this and that, but much worse. Rich individuals were just deducting everything they buy from their taxes.

The Reagan "tax cuts" did two things. One, they closed a lot of those loopholes. Two, they significantly lowered nominal rates. The two things basically canceled out. There was never any meaningful reduction in government revenue.

gumby2• 6 years ago

They did a third thing which was to make the tax system more regressive.

That was by deliberate design: there is a specific argument for it going back to Burke at least. I strongly disagree with it but I understand the argument.

AnthonyMouse4• 6 years ago

Whether or not that was their stated intent, it isn't what they actually did.

Here's the effective rate table going back to before Regan:

https://www.taxpolicycenter.org/statistics/historical-averag...

Not exactly huge differences before and after. And compare the recent effective rates to the ones at the start of the table. About the same for the top quintile, significantly lower for all the others. So we should be seeing a reduction in wealth inequality then, right? Or at worst it should stay the same, so why are we seeing the opposite?

Obviously this doesn't prove that the thing that hasn't actually been tried would actually help, but it does point to the idea that maybe the problem lies somewhere else entirely. For example, lack of effective antitrust enforcement.

WillPostForFood• 6 years ago

You are right, Federal receipts have been hovering between ~15-17% of GDP since WWII, regardless of whether the top tax rate was 90% or 28%. There is more variation due to changes in growth than changes in rates.

https://fred.stlouisfed.org/series/FYFRGDA188S

jacques_chester5• 6 years ago

The sentence immediately prior to the Reagan reference:

The new paper ... examines 18 developed countries — from Australia to the United States — over a 50-year period from 1965 to 2015.

And from the original paper[0]:

Many empirical studies look at single tax policy indicators to identify tax cuts for the rich. However, there is some disagreement on measuring taxes on the rich in the literature. First, there is no consensus on which taxes to look at. Whilst some authors look at taxes on personal income (Egger et al., 2019; Rubolino and Waldenström, 2020), others focus on corporate taxation (Devereux et al., 2002) or inheritance taxation (Piketty and Saez, 2013b). Second, economists have used different tax policy indicators. Some look at top marginal income tax rates (Piketty et al., 2014), while others look at effective tax rates (Egger et al., 2019) or revenue generation (Baunsgaard and Keen, 2010). We propose an encompassing approach that utilises Bayesian latent variable analysis on a range of different taxes and indicators to overcome these problems. This allows us to detect shared variance across 7 indicators that are commonly used proxies for taxes on the rich (see Table A1 in the Appendix). In total, the data cover 18 OECD democracies over 5 decades (1965-2015). We estimate the latent variable using a Bayesian Markov-Chain Monte Carlo (MCMC) approach with diffuse normal priors, three MCMC chains and 1000 burnin iterations (for more information on the estimation of the latent variable, see Hope and Limberg, 2020).

It's likely that professionals have a better grasp of the nuances of empirical tax research than you or I.

[0] http://eprints.lse.ac.uk/107919/1/Hope_economic_consequences...

wffurr4• 6 years ago

The actual paper where you can read their analysis for yourself: http://eprints.lse.ac.uk/107919/1/Hope_economic_consequences...

That's a nice just-so story, but it's not supported by the evidence. You can read for yourself in the original paper, but the authors used a pretty sophisticated approach to measuring taxes:

" We propose an encompassing approach that utilises Bayesian latent variable analysis on a range of different taxes and indicators to overcome these problems. This allows us to detect shared variance across 7 indicators that are commonly used proxies for taxes on the rich (see Table A1 in the Appendix)"

AnthonyMouse4• 6 years ago

That's a nice just-so story, but it's not supported by the evidence.

Here is the evidence:

https://fred.stlouisfed.org/series/FYFRGDA188S

It is supported by the evidence.

You can read for yourself in the original paper, but the authors used a pretty sophisticated approach to measuring taxes:

So sophisticated a model that it can measure the impact of a change in tax revenues that didn't meaningfully occur?

specialist• 6 years ago

All of these studies consistently miss one thing. Effective tax rates haven't really changed since before Reagan.

I'm not following you. You've cited stable effective income tax rates and gross federal tax receipts.

OC says supply side policies led to greater inequity.

Do your cites refute their claim?

Mea culpa: I don't understand this OC's measure of inequity. I'd be grateful if someone could do an ELI5 comparing it to the Gini coefficient. https://en.wikipedia.org/wiki/Gini_coefficient

1vuio0pswjnm7• 6 years ago

"Prior to Reagan, the tax code was riddled with loopholes."

A friend who used to work at DOJ many years ago told me that the greatest ever expansion of the US tax code was during the administration that came in after Reagan.

RcouF1uZ4gsC• 6 years ago

Julian Limberg, a co-author of the study and a lecturer in public policy at King's College London, said in an email to CBS MoneyWatch. "In fact, if we look back into history, the period with the highest taxes on the rich – the postwar period – was also a period with high economic growth and low unemployment."

You can't really compare the present time to the post-war period, especially in the case of the United States. Basically, post-war USA had a monopoly in industrialization. Great Britain, France, Germany, USSR, Japan had all had their industry literally blown up. China had undergone a huge civil war and invasion and occupation by the Japanese. India was just emerging from centuries of British colonialism which basically exploited its natural resources.

In addition, in the USA there was rampant and overt discrimination and harassment against women. There was open racism and segregation.

So if you were a white male, your skills were desperately needed as the US now supplied the industrial output for a huge chunk of the world's population.

Even in Europe, a generation of males had been killed in two world wars. There was a huge labor shortage. And especially for Western Europe, with the Marshall Plan, the US was pumping in loads of cash to enable industrialization to face a perceived Soviet threat.

It all came together to create a very high demand on labor, and as such allowed labor to claim a high proportion of the value generated. Those were the days where you could have one man with a high school education, support an entire family in middle class lifestyle with a detached house and yard.

Those post-ware days are long gone, and no tax policy will bring them back. The rest of world is industrializing. Globalization is happening with the world getting flatter. A larger percentage of the population is entering the work force.

jacques_chester5• 6 years ago

The study looked at many countries, not just the USA.

wffurr4• 6 years ago

Frustrating that CBS couldn't be bothered to link the actual paper: http://eprints.lse.ac.uk/107919/1/Hope_economic_consequences...

A better link might be London School of Economics' press release: https://www.lse.ac.uk/News/Latest-news-from-LSE/2020/L-Decem...

gt565k• 6 years ago

They did trickle down, to the highest valuations of companies, leading edge technology, and high stock prices.

If you're a middle class american without a brokerage / investment account. You are getting shafted.

Immigrants in the USA are especially risk averse when it comes to investing in the stock market, because the countries they come from are corrupt and they have been screwed in the past. It's amazing how many Americans with the means to invest in the market, would rather eat out every day, buy a new car and iphone every 1-2 years, drown in debt, and fail to reap the rewards of capitalism. Not investing in companies through the stock market is the very definition of not taking advantage of the capitalistic society we live in.

K-12 education in the US should have a mandatory course on the financial market and educate people about the tax advantaged accounts available to them. Of course, this is like the government pouring gasoline on its own fire, so it will never happen. Why? Because the govt has no incentive to help you reduce your tax burden, while reducing their tax revenue.

People don't have a clue about 401k, HSA, Roth IRA, Back-door Roth IRA, 529 college savings accounts, student interest deductions, brokerage accounts and capital gains tax, and the advantages of each.

Credit is horrible to the financially illiterate consumer, but is empowering to those that understand economics and capitalism, avoid consumerism, and understand how to invest capital and make a return.

dang• 6 years ago

https://news.ycombinator.com/item?id=25440832

beloch• 6 years ago

Naive question:

When talking about taxes on the wealthy, the metrics people seem to really care about are employment rates and wages for people the wealthy employ.

So why not increase tax rates on the wealthy significantly, close loopholes, and then introduce big tax credits for every head employed and every dollar spent on employee salaries? i.e. Instead of slashing taxes so the rich have more money and then hoping that they will spend it on their employees, incentivize the desired behaviour directly.

Zenst• 6 years ago

The way to solve TAX is to tap into the spending more than the earning. Can only triage the TAX system and at least raise the threshold before paying TAX and tap into the expenditure with the taxes upon the niceties in life that the rich gravitate towards.

Also trickle down thinking just needs to see how water trickles down when the rich have their own underground pipe network to catch it all.

Tree economics would be a more apt term for what we have as like a large tree, you have a root system holding that up and yet nobody see's the roots until the tree has fallen. Bit like the fallout when some large company goes bust, same with small ones at scale.

TAX cuts via rate changes should really of taken a back seat and raising TAX thresholds would of been the better approach. Raise the bar and do tax cuts that way.

gutino• 6 years ago

The article is fundamentally wrong, the only way whealth would not trickle down is if the rich will bury their money or destroy it. Think about it:

When the rich buys a Yat, cars, houses, vacation, -> give money to those who produces those goods/services.
When the rich saves money, typically it does through financial instruments, which we use it to fund our projects, home, buys etc.
A great portion of the whalth is working capital which are used for all the employes that work with them, producing earning for everyone.
Many billionaires have stock valued in billions but those stocks if they are sold by them, will get them lower the value.

The concept of ownership does not mean that other can not use it. The real question is what % of the whealth is EXCLUSIVELY used by the rich

apta3• 6 years ago

High taxation is a symptom of a broken economic system. Taken from my post on the other thread.

The problem lies elsewhere, but no one seems to discuss it. It's not for no reason that Islam, Judaism, and Christianity prohibit lending money with interest. We look around us and see a debt heavy and debt ridden society. The modern usurious economic system is inherently going to favor the rich. Ban interest and other usurious immoral and parasitic practices (e.g. stock shorting) and things will improve quickly.

lumberingjack• 6 years ago

I work for the uber wealthy trickle down directly affects me and actually works for my business we always notice an uptick in jobs and work whenever the economy is doing great which is usually directly affected by how much our clients are being taxed.

mrlonglong• 6 years ago

Maybe they should make a law if the rich gets tax cuts they must pass it on to the ones at the bottom.

50 years of tax cuts for the rich failed to trickle down, economics study says

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