The Obamanation

[Happy Monkey]

What leads you to that conclusion?

From your table,
Cash Income Level: 200-500 thousand
Average Federal Tax Change: 108 dollars.

So out of all of the people making between $200,000 to $500,000, the average tax increase would be $108. Makes sense, most of the people in that line of the table would obviously be less than $350,000.

Cash Income Level: 500 thousand to a million
Average Federal Tax Change: 2769 dollars.

That fits in my calculation of $1500 to $9000.

[TheMercenary]

Ok, you win. That is what it looks like. But that is not what it says in the fine print.

[Happy Monkey]

The fine print can be misinterpreted in the same way that the article I posted could. The law you posted is (thankfully) more precise.

The way to parse that fine print is that it all applies to one tax unit, and it divides their income into piles. It doesn't divide tax units themselves into piles.

(1) Calendar year. Baseline is current law. Proposal is the surcharge on high income indivduals described in America's Affordable Health Choices Act of 2009. Tax units pay a 1 percent tax on modified AGI between $350,000 and $500,000 for couples ($280,000 and $400,000 for others), a 1.5 percent tax on modified AGI between $500,000 and $1,000,000 for couples ($400,000 and $800,000 for others), and a 5.4 percent tax on modified AGI exceeding $1,000,000 ($800,000 for others). Modified AGI is AGI less any deduction for investment interest.

So a couple puts up to $350,000 into one pile, and pays 0% on that.
If there's any left, they put up to $150,000 (half mill total) into the next pile, and pay 1% on that.
If there's any left, they put up to $500,000 into the next pile, and pay 1.5% on that.
And they pay 5.4% on the remainder.


I think it is largely the misunderstanding of this mechanic that leads people to claim that a progressive tax system "punishes success".

[TheMercenary]

But a progressive tax system does punish sucess if they are the only ones paying the tax.

[Happy Monkey]

Each additional dollar may be taxed a bit more, but that is counterbalanced by far by the fact that each additional dollar is much easier to earn.

[Urbane Guerrilla]

The libertarian, of course, asks if such a thing is fair ab initio. He can make a case for it not being so.

Originally Posted by Urbane Guerrilla

The libertarian, of course, asks if such a thing is fair ab initio. He can make a case for it not being so.

Adam Smith, the icon of many free traders, made a case for a progressive tax in "The Wealth of Nations":

The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.

[TheMercenary]

Originally Posted by Happy Monkey

Each additional dollar may be taxed a bit more, but that is counterbalanced by far by the fact that each additional dollar is much easier to earn.

What makes it easier to earn?

Every extra dollar I make is hard to earn.

[TheMercenary]

Alexander Hamilton On Taxation
Excerpt from FEDERALIST No. 21
Other Defects of the Present Confederation

By Alexander Hamilton
for the Independent Journal

To the People of the State of New York:

HAVING in the three last numbers taken a summary review of the principal circumstances and events which have depicted the genius and fate of other confederate governments, I shall now proceed in the enumeration of the most important of those defects which have hitherto disappointed our hopes from the system established among ourselves. To form a safe and satisfactory judgment of the proper remedy, it is absolutely necessary that we should be well acquainted with the extent and malignity of the disease.

. . . There is no method of steering clear of this inconvenience, but by authorizing the national government to raise its own revenues in its own way. Imposts, excises, and, in general, all duties upon articles of consumption, may be compared to a fluid, which will, in time, find its level with the means of paying them. The amount to be contributed by each citizen will in a degree be at his own option, and can be regulated by an attention to his resources. The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions. If inequalities should arise in some States from duties on particular objects, these will, in all probability, be counterbalanced by proportional inequalities in other States, from the duties on other objects. In the course of time and things, an equilibrium, as far as it is attainable in so complicated a subject, will be established everywhere. Or, if inequalities should still exist, they would neither be so great in their degree, so uniform in their operation, nor so odious in their appearance, as those which would necessarily spring from quotas, upon any scale that can possibly be devised.

It is a signal advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. They prescribe their own limit; which cannot be exceeded without defeating the end proposed, that is, an extension of the revenue.

http://www.fairtax.org/PDF/Federalist_No_21.pdf

[Happy Monkey]

I can't speak for you in particular, but here are a few ways in general.

At my level of income, most people's raises are in percentages of their current salary, which compounds over the years. People making the minimum wage have to wait for Congress to give them a raise, or work extra jobs.

I can invest. The more I have, the more I can invest. Dividends are in proportion to the amount I already have.

If you can build up a down payment, purchasing property causes housing payments to add rather than detract from your net worth.

If you have money, it's much easier to get loans of more money if you wish to start a business.

And that's at my middle-class level. At the ultrarich level, it is hugely exaggerated. Bill Gates could get his next million a bit quicker than I could get my first.

[TheMercenary]

Yea, but you know it is common to hear people make comparisons to the likes of Bill Gates or other mega millionares. It really is not an accurate comparison to reference someone at that extreme. I am certainly in the upper middle. But I have worked my ass off to get here. And I have taken some pretty significant risks to make it happen over a lifetime.

Hard work gets you more. But it does not make the next dollar come any easier. And then you have the example of young people comparing themselves to what you may have in material goods or your bank account and they want that NOW. They don't think it is fair since you have so much more than them. You should share it. But they don't want to do the work or make the sacrifice to get to the same spot. There is always an excuse as to why they can't get to the same level of prosperity. But they know that you have more and therefore you can "afford" to help take care of their needs. That ain't happening.

[Happy Monkey]

Bill Gates is the extreme, but it applies all the way down. I just listed a bunch of ways that having money does make the next dollar come easier, even at my level. Care to respond to any of those?

[TheMercenary]

Originally Posted by Happy Monkey

I can't speak for you in particular, but here are a few ways in general.

At my level of income, most people's raises are in percentages of their current salary, which compounds over the years. People making the minimum wage have to wait for Congress to give them a raise, or work extra jobs.

At some small percentage of growth in salary is hardly making progress. I don’t really consider that significant growth. You can barely keep up with inflation or cost of living and almost all of those jobs have a ceiling to which you max out. Many jobs like that, for example a GS job is on a similar sliding scale that is determined by time and job description. Eventually you max out so growth stops. With the exception that government jobs are given a cost of living adjustment while most jobs do not give those. So sure you make more but only a very little more and then it stagnates.

[TheMercenary]

I can invest. The more I have, the more I can invest. Dividends are in proportion to the amount I already have.

This is quite true. I do that with all of my investments.

If you can build up a down payment, purchasing property causes housing payments to add rather than detract from your net worth.

But the long term investment is what pays off in real estate, unless of course you got in during the recent bubble. But even with that you should come out ahead in the long run. Smart buyers can really make this work to your advantage. Simply paying an extra payment a year makes a significant difference. Real estate becomes your real nest egg over time. If you move frequently it will never likely pay off. But if you are settled down, like me, I will make more than 50% back on my house sale if I sold it in 5 years (because it will be nearly paid off). I would disagree, real estate can be a real money maker.

If you have money, it's much easier to get loans of more money if you wish to start a business.

That is very true. And if you don’t have any assets you will find it hard to get any kind of financing. And you would then be truly at the bottom of the economic scale.

And that's at my middle-class level. At the ultrarich level, it is hugely exaggerated. Bill Gates could get his next million a bit quicker than I could get

Again, ultra and uber rich is not an accurate or fair comparison in any of these scenarios. That is a whole class of people and situations which few to none of us will ever experience.

[Happy Monkey]

Originally Posted by TheMercenary

But the long term investment is what pays off in real estate, unless of course you got in during the recent bubble. But even with that you should come out ahead in the long run. Smart buyers can really make this work to your advantage. Simply paying an extra payment a year makes a significant difference. Real estate becomes your real nest egg over time. If you move frequently it will never likely pay off. But if you are settled down, like me, I will make more than 50% back on my house sale if I sold it in 5 years (because it will be nearly paid off). I would disagree, real estate can be a real money maker.

Sounds like you are agreeing with me, not disagreeing. If you can afford to buy, you will make more than if you can't.