[jbooth]

Yeah, but they make more than 50% and more than 3/4 of the income, respectively.

Richer people pay lower taxes as a percentage of their income than the middle class. Much lower. It'd be lower even if they did it all by the book and didn't hire expensive accountants and use offshore accounts, tax havens and all of that. Once you add that stuff in it's significantly lower.

It's a bug, not a feature. Meanwhile, presumably you're not a multi-millionaire, and you're actually cheering for them to pay less off their income in taxes than you do. Pretty funny stuff.

[ryanwaggoner]

First, how do you know that I'm cheering for anything? I stated a simple fact. It doesn't mean that I approve of it. And my post was in response to this claim: Yes, but in practice, this means that the middle classes pay most of the tax

While "the rich" might pay a lower percentage of their income in taxes, it's just flat-out false that the middle class pay "most of the taxes." Whether this should or shouldn't be the case is a discussion for another day.

[jbooth]

Sorry for implying that, and you were correct on the semantics. The fuller explanation would have been more helpful, though.

[chrisbolt]

Yeah, but they make more than 50% and more than 3/4 of the income, respectively.

No, the linked Wikipedia page says:

the top 5% with gross income of $137,056 or more pay 57.1% (earning 33.4%)

[jbooth]

Well, the wikipedia cites the WSJ, which is behind a paywall. I suspect that they're either wrong or creatively fudging things.

After 100k your FICA payments taper off to nothing. That's money off the top, right into your pocket. Additionally, the capital gains taxes are only 15% compared to much higher for income. This means that the wealthy have a hugely advantageous tax situation.

Although, I thought that the bottom of the top 5% was higher than 137k. Another wiki here: http://en.wikipedia.org/wiki/Household_income_in_the_United_... puts it at 157k, which is probably high enough to tilt the math towards what I was saying. Certainly over 150-200k your tax burden as a % of income starts going down, due to the decreased FICA contribution and potentially a share of income from capital gains.

[anamax]

> After 100k your FICA payments taper off to nothing. That's money off the top, right into your pocket.

Since your SS benefits are also capped, it's unclear why you think that capping the taxes is wrong.

The folks who set up SS thought that the tax and payout cap was a good thing beause it kept rich people from caring about SS. If you uncap both taxes and payout, you end up paying Ross Perot $400k/year in retirement. If you uncap taxes but cap payout, rich people start caring about SS.

What is your alternative to capped payout and taxes?

FWIW, SS payouts are progressive - the less you contribute, the better your return.

[zamfi]

If your income comes from capital gains or creative accounting, yes.

But if you're a salaried worker earning over 150-200k, the percentage of your income going to federal income tax is greater as your income increases - more of your income falls into a higher bracket. (Also, FICA doesn't drop to nothing, it drops to 1.45% from 7.65%, saving you 6.2%.) See e.g. http://en.wikipedia.org/wiki/File:US_income_tax_2008.svg

You are assuming that as income rises above 150-200k, it takes forms that are taxed at a lower rate, not just "potentially".

[jbooth]

Hm, you actually may be right, assuming no accounting and no income from capital gains, high-paid salaried workers do pay more in taxes. And they're probably earning their pay. So I was wrong on that part of the math.

Meanwhile, people who are supremely highly paid (in the > 500k -> millions range) usually get a big chunk of it in options. That's fine as a payment plan, I even agree with it, but they should pay the going rate on their income. And that's not even getting into my real beef, which is the culture of "tax avoidance is honorable" that's pervasive in higher-end business - it diverts labor into parlor tricks and disadvantages actual innovation.

[zamfi]

Option grants are taxed as income too, the advantage to options is that any increase in stock price can be taxed as capital gains if you exercise the option immediately and hold the stock for more than 1 year.

Direct stock grants are also taxed as income, with the same caveat that stock value appreciation can be taxed at the lower capital gains rate.

It sounds like your beef is with the capital gains tax rate, not income tax itself. :)

I can't speak to the culture of "tax avoidance is honorable", but if the federal government is trying to incentivize people to behave in a certain way (say, to invest in stocks in the long-term) by giving folks who do that a tax break...then your beef is really with the government wanting people to invest long-term in stocks. That seems like a more difficult argument to make.

[jbooth]

My beef is precisely with the culture of tax avoidance and the loopholes that you're so neatly sidestepping in this conversation. Ok, maybe it's not quite so bad as I'm making it out until you consider the loopholes and everything. In reality, the overwhelming majority of people earning > $1 million are probably paying a lower % of their income in taxes than I am, after deductions, spending a significant chunk of my yearly salary on accountants, the whole mess. That's ridiculous.

[dedward]

Taking a wealthy friend as an example, and watching how many jobs he's created, how many charities he's created, and how many lives he's changed - plus the sheer raw numbers of dollars he paid in taxes on top of all that - I don't really care if the percentage is less than mine. I didn't create 500 jobs or donate hundreds of thousands of dollars to real-life charities every year.

EDIT: That doesn't mean I think the system is perfect or that people don't cheat, or that the wealthy are somehow innocent - money is power, and those with more money will exert more influence on how to keep more of it - that's natural.

[jbooth]

Yeah, and he did all of that because we have a society that enabled him to do it.

Good for him. Seriously. But if he doesn't feel obligated to pay back towards that society then he's either missing something inside or fell victim to a convienent ideology that told him it's good to be selfish.

Whatever happened to noblesse oblige?

Not to mention, of the millionaires I've met, most aren't entrepreneurs and didn't create any jobs, they just worked in finance.

EDIT: To add: If your friend has those millions and likes the society he earned it in, it's probably worth him paying back into it purely as an investment. If we actually funded infrastructure and education in this country, we might see better returns from them.

[ryanwaggoner]

Are you donating all the extra money you have to the IRS? Are you skipping all deductions, even if you're eligible for them? Why not?

Your argument is essentially that we have a duty to pay as much tax as possible. But this is predicated on the belief that paying taxes is the best way to benefit society with your resources. Obviously, this is a long-standing debate that we won't solve here, but I would argue that the government is a terrible, terrible steward of resources, and I'd much rather have the money in the hands of "the rich", who seem far more likely to invest it and create jobs and institutions that better society. And yes, enrich themselves along the way. I'm fine with that. A rising tide floats all boats.

Again, I find it humorous that people who get all worked up over someone minimizing their tax liability through tax avoidance (completely legal) seem really interested in raising tax revenue, as long as it's someone else's money. None of them are sending donation checks to the IRS, which seems the height of hypocrisy. You have shit you don't need and someone else needs shit you have, so why not donate the money and let the IRS help those poor folks out? If you truly believe the government is the best way to allocate limited resources, why wouldn't you do this?

[jbooth]

I'm in the band of income that pays the absolute highest taxes as a % of income. I just want rich people to pay the same % as I do, or a tiny bit higher since they'll miss it less. I don't complain about paying my taxes, I see them as membership fees to live in a society with laws and running water and OSHA.

It's not about "small govt" or "big govt", those are just buzzwords. The government's hugely in the red either way. Who convinced you that this was ideological, rather than a matter of simply paying their fair share?

[gyardley]

While we might be able to justify one person paying orders of magnitude more taxes than another, based on the overall benefit to society as a whole, let's not pervert language by describing that system as 'fair'. In fair systems, people get the same service for the same price.

[jbooth]

Yeah, and in an anarchic system, power and money flow upwards until it's unsustainable and it collapses.

We're not living in caves, definitions of fair should include upward mobility.

And who says they're not getting the same service? Wealthy corporations and individuals get a ton of services from the US gov't, from subsidies to infrastructure to direct benefit from the State Dept and military.

[_delirium]

I don't know about other people, but I don't go out of my way to avoid taxes. I certainly don't create new companies or change how I do business in order to avoid taxes. If there's an actual deduction box on a form that I'm eligible for, sure, I'll check it. But I don't really spend days thinking up ways to hide my income. Any time I would've spent on that could be much more productively spent by just making more income.

[ju2tin]

"Any time I would've spent on that could be much more productively spent by just making more income."

Which is actually a good reason to make taxes lower and less burdensome, so the most productive members of our society (as measured by income) will spend their time producing, instead of defending the fruits of their labor from the tax man.

[_delirium]

In my experience, the kinds of people who spend the most time on minimizing taxes are precisely the opposite of productive members of society: heirs and heiresses with large assets and passive incomes, but not much real capacity for earning income through their own labors. You generally see complex tax-avoidance trust structures in these "old-money" families much more than you see them in new-money families. For them, it's a rational decision, because the opportunity cost of spending a bunch of time/effort on tax avoidance is low: they aren't wasting time that they would otherwise have put to more productive uses.

[jbooth]

Well, it's certainly a reason to make them simpler.

But those same big companies with the same high priced lawyers, accountants and lobbyists never tend to actually advocate for making them simpler. Oh, they might say that in public and at your Ayn Rand book club, but it's not what they say when they're speaking to the congressmen.

EDIT: Hey guys, I wasn't dissing Ayn Rand, don't get so defensive. Just, you know.. who's got a really big interest in making sure people believe all this stuff? Might be worth thinking about.

Big corporations don't actually have an interest in a simple tax code -- more complicated means their accountants give them a competitive advantage.

[ju2tin]

I think the point here is that he "paid back toward society" by creating jobs and charities, not by forking over his money to the government for it to waste on inefficient pork-barrel projects and other ill-chosen boondoggles. Why do you apparently think we can only help society by giving money to the IRS?

[loewenskind]

Anecdotes don't prove anything. Plenty of rich people don't create any jobs (directly anyway) and if they are giving to charities it's usually for tax reasons and/or PR. If you had the money your rich friend has you almost certainly would have donated a similar amount to charity.