A Flea in the Fur of the Beast

“Death, fire, and burglary make all men equals.” —Dickens

Tag: taxes

Conservative fantasy world

by pdxblake

Two counties in Southern Oregon rejected an increase in their property taxes—that are the lowest in Oregon—that would have funded public safety (including having police available the whole day). Anti-tax zealots, here is your dream world (as described by the Majority Leader in the Oregon House):

“I don’t feel good that we have parts of Oregon that are becoming like parts of Appalachia. I don’t think it’s right that a woman who needs immediate help because she is being attacked has to wait three hours until a police officer can get there.”  (emphasis added).

Yes, taxes pay for essential services and the answer is not just “cut down more of the forests willy nilly.” Sometimes when you have lower taxes than everyone else in the state and can’t pay for the police department, you have to suck it up and pay more taxes. Sorry.

Phil Mickelson is whining about his taxes, threatening to go Galt

by pdxblake

Some people don’t know how to avoid sticking their feet in their mouths and today’s example is Phil Mickelson, who told the New York Times:

“If you add up all the federal and you look at the disability and the unemployment and theSocial Security and state, my tax rate is 62, 63 percent,” Mickelson said. “So I’ve got to make some decisions on what to do.”

So he claims he pays more than 60% of his income in taxes.  I’m not an accountant, but let’s consider what it would take to get to a 60% marginal rate at any income level for some rich guy living in California named Mel Phickelson. Okay, start with the highest marginal tax rate on the federal level which will be 39.6%, add in the FICA rates of 7.65% (doubled since he is “self-employed” so he has to pay both employer and employee side), plus California’s highest marginal tax rate and you get to 13.3% additional. Add those together, you do indeed get to a number in the 60+% range.

Yet only an idiot who earns $47.8 million playing golf would actually believe that his actual tax rate would be that high. Or he has the world’s worst CPA. By my rough guess using the numbers I could find on the tax brackets for 2013 (federal) and 2012 (state), he probably will pay around 51% in taxes, although this is higher that he would actually pay if my estimates are correct since it doesn’t account for the deduction of state taxes paid for Federal taxes, not to mention the many, many creative ways the CPAs of the wealthy have of dropping the tax burden for their clients.

Yet, even that high number (which probably is far in excess of what Mickelson actually pays) disguises a lot. For example, using these unrealistically conservative estimates, he pays 35% on his first $225,000. In fact, of the estimates for his total tax bill, 98.2% of it comes from his income from dollar number $1,000,000 to dollar $48,700,000.

Basically, what this comes down to is that he has no clue, and really should go CMAFR.

Income inequality is up and tax rates are down

by pdxblake

Following up on Evan’s post this morning about the NY Times article which found that high-income Americans have seen their taxes fall dramatically compared with what they would have paid 30 years ago.  The reason the wealthy feel overtaxed is not because their taxes have gone up–they have gone down–but because their income has grown so much more so that they are paying higher levels, but far less than they would have paid thirty years ago.

One of the roles of government through a safety net is to keep inequality in check, by providing assistance to the people at the lower end of the income spectrum and by taxing lower incomes at lower rates than higher incomes (a progressive tax code).  The effect of the tax code is supposed to narrow the level of inequality in the economy because high inequality makes income mobility harder, and generally makes the country more like a developing country.

The Congressional Budget Office made a chart in a report in late 2011 showing the income share by income quintile (each quintile represents 20% of the population, arranged from lowest income to highest):

https://i0.wp.com/www.cbo.gov/sites/default/files/cbofiles/new/homepage_graphic_large.png

What this chart shows is that the (after taxes and income transfers from the government, i.e. Social Security, Unemployment Benefits) lowest four quintiles (the lower 80% of households) saw their share of total income decline from 1979 and 2007, while the 81st – 99th percentiles saw their share stay mostly flat.  The only area of growth in income share was among the 1 percent.

And, the change in income share is not due to rapid growth of income (except among the higher incomes):

https://i0.wp.com/irregulartimes.com/wp-content/uploads/2010/09/meanhouseholdincome1967to2008.png

In the chart above, the period is longer than the period that the CBO report covers, but you can pretty clearly identify where the growth of inequality started to really grow rapidly, around 1980, coincidentally enough.  Putting all this together with the analysis from the NY Times and it is hard to argue that the top 20%–and especially the top 1%–need more tax cuts (to keep the “job creators” happy of course), since they (through their political surrogates mostly, though not exclusively, in the Republican Party) are capturing both higher pre-tax incomes, but also lowering the tax rates they would pay on the same income level in 1980.

If you want to wade further into the weeds of tax policy, you can read this post by Kevin Drum (via Mark Thoma) about how the 1986 tax “reform” that hiked the payroll tax rate and allowed income tax rate cuts effectively allowed people who pay income taxes (the 53%) to “borrow” from payroll tax payers (who tend to be lower income on average, since payroll taxes are only paid on the first $106,800 of income).  Now that it is closer to the time when the trust fund runs out and the gap between current benefits and current payroll tax has to be paid out of federal income tax revenue, which will necessitate raising income taxes, to effective ‘repay’ the loan from payroll taxes over the last 25 years.

The Most Depressing Article You’ll Read About Taxes And Rich People (Today)

by evanmcmurry

A must-read from the New York Times on why rich people crying about taxes are full of it:

Most Americans in 2010 paid far less in total taxes — federal, state and local — than they would have paid 30 years ago. According to an analysis by The New York Times, the combination of all income taxes, sales taxes and property taxes took a smaller share of their income than it took from households with the same inflation-adjusted income in 1980.

Households earning more than $200,000 benefited from the largest percentage declines in total taxation as a share of income. Middle-income households benefited, too. More than 85 percent of households with earnings above $25,000 paid less in total taxes than comparable households in 1980.

Lower-income households, however, saved little or nothing. Many pay no federal income taxes, but they do pay a range of other levies, like federal payroll taxes, state sales taxes and local property taxes. Only about half of taxpaying households with incomes below $25,000 paid less in 2010.

The uneven decline is a result of two trends. Congress cut federal taxation at every income level over the last 30 years. State and local taxes, meanwhile, increased for most Americans. Those taxes generally take a larger share of income from those who make less, so the increases offset more and more of the federal savings at lower levels of income. [E.A.]

So much for that whole “47% of people pay no taxes” line. Even worse:

Governments still collected the same share of total income in 2010 as in 1980 — 31 cents from every dollar — because people with higher incomes pay taxes at higher rates, and household incomes rose over the last three decades, particularly at the top.

There are now many more millionaires, in other words, paying more than they did in 1980, but they are paying less than they would have if tax laws had remained unchanged. And while they still pay a larger share of income in taxes than the rest of the population, the difference has narrowed significantly. [E.A.]

So the only reason wealthy households are paying what feels like a higher tax rate is because they make so, so much more money compared to when their tax rates were higher that they’re paying a larger amount of taxes even though their rates have gone down; nice problem to have! Of course, in the same period wages for everybody else have stagnated or declined, yet lower income families are paying a higher amount in taxes without making more money.

To sum up, household incomes for the wealthy increased drastically in the past thirty years while their tax rates have decreased considerably; meanwhile, wages for lower income households have gone down, while the amount they paid in taxes went up. And this was the system Mitt Romney wanted to fix to make it fairer for the rich.

Logic: A Still Life

by evanmcmurry