Why should rich people pay a greater share of their wealth to taxes?

One of the most lucrative hedges against taxation which the wealthy enjoy is captial gains. If, in 1980, i bought a work of art for $50,000, which would have been about a year's wages for an autoworker, among the best paid of the working class, i could hold it for ten or fifteen years, and sell it for $500,000, if i had chosen wisely or had been well advised (something i could afford to pay for). That is a capital gain, and it would not be taxed as ordinary income is taxed. Of course, by 1990 or 1995, the tax rate had been lowered enough that it no longer mattered as it had in previous years. However, the point is that capital gains are not treated as income in the same sense the wages of the middle class and the working class are treated. There are always significant advantages which accrue for the wealthy that don't apply to others. Capitals gains are not just painting one buys--they are income from investments, but are not treated as other income. It can be dividends from stock, it can be land purchases--it can be many things.

The problem with that is - if these individuals who started these businesses and risked their own money in investing in the business do not get some sort of profit from their risk - then what would be the incentive to invest.

In other words, if I use all my good hard earnings to start a business and it booms, then should I not be rewarded by it? The workers do not risk all their money to get a job. They do not risk any money to get a job.

I do not believe in tax shelters for anyone - what should be done is close loop holes such as these and then tax the same rate across the board. Except for those of course who cannot afford to pay taxes.

The problem is not with a flat tax rate, the problem is there are too many ways to avoid taxes.

" I wish people who spout off about this stuff would bother to actually learn something about what is really going on. "

And if you read thoroughly I've already "spouted off about this stuff" above.

Even with our progressive tax structure, the people you mention - if they start successful businesses - are rewarded tremendously.

People have an incentive to invest no matter what the progressive tax rate is. Businesses were started and created and were profitable all the time during the era of top marginal rates above 70%, twice what they are today.

Cycloptichorn

More than 70%--in the 1950s, the highest nominal rate was over 90%. (I earlier linked a page from the National Taxpayers' Union with the rates for the entire history of the income tax of the modern era.) Wealthy people can always benefit from capital gains, as i've also already pointed out. Furthermore, a business is not guaranteed any profit at all, never mind any particular rate of profit. If someone starts a business, and it doesn't yield enough to pay their obligations and their taxes, and still afford the founder(s) a profit, then they invested unwisely. There is no guarantee in the constitution that businesses are entitled to succeed, or to make any particular rate of profit.

If they keep the profit in the business, their incentive is a rise in equity. If they take the profits out of the business, a profit minus income tax is still a profit. Nobody suggested that public policy abolish all profits---only that it tax them at a progressive rate.

How dare we even think about taxing the omnipotent rich?! If we tax them even at a 1% higher rate, then they might have to curb their livelihoods!

Not only do the uber rich need this money to fill their bathtubs with 1996 Rosé Gold vintage Dom Perignon but they use Macallan scotch whiskey to flush their solid gold toilets after each use.

You are an utter monster Dave World for trying to take away these necessities of life!
~~~
But really! A higher rate of taxes will not force any billionaire into homelessness or potential starvation. The fact we are supposed to weep for them because of any extra tax burden is utterly disgusting and misplaced.

Tax rates are marginal.... People with high incomes pay the same rate on the first $30,000 they make as anyone else does.

And if you really wanted to get creative with that $50,000 painting, you could gift it and get a tax-free write off of $500,000.

A properly managed business, even a small business, can be a gold mine for the founder(s). People who establish S-corporations or standard corporations routine (and legally) take a salary as a manager of the corporation. So long as they can show that they actually work, the IRS has no objection. The standard practice for an S-corporation is for a husband and wife team to charter the corporation, and take the four basic jobs--President, Vice President, Secretary and Treasurer. They can then take salaries, so long as they can show that they actually do work for the business. They can use a company car, company fuel card and company credit card--once again, so long as they can show that they actually use the vehicle and the cards in the interest of the business. Such coporate officers are entitled to the benefits of health insurance, vehicle insurance, liability insurance and workers' compensation deposits. The only caveat that is applied is that they be able to show that they work for the business. If you meet the requirements, and your business still has a reasonable prospect of making a profit, you're in like Flynn--a salary, all the benefits, and the possibility of taking profits.

Which is to say, they can take distributions. This is the legal term, a distibution being a distribution of the profits of the business. That's a little harder to fiddle, though. The tax boys will only accept that you take a distribution of some (almost never all) of profits which have already accrued, or some (a much smaller some) of reasonably projected profits. You can't take a distribution of projected profits for future fiscal years, but only the fiscal year in which you are currently operating. (When you charter your corporation, you have to specify your fiscal year and your accounting method. Your accountant at the time of foundation is considered your accountant of record, and if you change accountants, you have to notify the tax boys. Usually, if you're not playing fast and loose, and you don't make the tax boys suspicious, the signature of your new accountant on tax filings is sufficient.) I've known accountants more than once to tell an officer of an S-corporation to put back money they've taken in distributions. Most accountants advise not taking distribution until the final papers for the fiscal year have been filed, but both accountants and the tax boys take a realistic attitude, and accept reasonable and modest distributions within the fiscal year.

Finally, you are obliged to sequester all funds for employment obligations. When you pay your employees, you also withhold taxes, social security and medicare payments, and workers' compensation and disability payments, depending upon the exact terms of the state in which you operate. The most common reason that a small business is shut down is the failure to sequester employment obligation monies--usually tax, social security and medicare withholding. I worked as a free-lance business manager (very successfully) for small businesses for years, and i was always amazed at the childish and resentful attitudes of so many small business owners toward these obligations. They act as though their pockets had been picked. But when you pay your employees, those withholding sums are their monies, not yours. The IRS is not a hard ass about these things, and neither is any state government that i've ever known of. But they absolutely will take no excuses and brook no delays in the deposit of withheld monies. Once again, that's the employees' money, not yours, and failing to deposit it literally constitutes theft. The best practice is to have a withheld monies account into which you routinely deposit money which can then be used to pay your obligations. You can always show the tax boys that you're prepared to meet your obligations, and if you properly manage your cash flow, you can leave that money in the account to accrue interest, and pay your withholding obligations out of your general cash flow. Unemployment compensation, workers' compensation and disability obligations are even less onerous. You have to file your Form 940 (Federal unemployment) only on a quarterly basis, even if you've reached the point where the size of your payroll requires a Form 941 deposit every pay period. The Form 940 deposit usually is a full deposit in the first quarter, a partial deposit in the second quarter, and no deposit at all in the third and fourth quarters. In my experience, with the exception of workers' compensation deposits, that's how state unemployment deposits and disability deposits work, too. It is very easy to budget for, and it's precisely because of the anticipation of those obligations that the tax boys won't let you loot your general fund for distributions as soon as the money accumulates.

The overwhelming majority of small business failures occur because of the mismanagement of or failure to segregate employment obligation funds. There seems to be this impression in our society that whatever you can grab is yours, and nobody can interfere with your plans for the money. Then some joker fails to make an employment obligation deposit, the tax boys come along, look at the books and the bank accounts, and shut them down. Then they go off crying about government interference. Meanwhile, their employees, working in good faith, just got screwed.

I think you mean a use tax or sales tax rather than a flat tax. A flat tax doesn't take usage rates into account at all.

In any event, how much do the rich use the justice system? How much do they use the military? The rich benefit inordinately from the political institutions of the state, but how do you tax them on their "use" of those institutions?

Be sure to give it to a relative, so that you can benefit from the capital gains on its eventual sale. A common practice is to make an in-kind or a cash payment to one's spouse (allowed on a one-time basis) which is completely tax free.

When Mulroney became the PM in Canada in the 1980s, there was a brilliant example of the wonderful plutocracy in Canada taking advantage of a Westminster style government. This is something you couldn't pull off in the United States. The Finance Minister simply instituted a new policy, and it was not subject to a vote in the Commons. Under the policy, parents were allowed to set aside a very generous sum for the support of any child with disabilities, and any profits from the investment of the monies was tax free. Additionally, the sums deposited in such a trust were not taxable for as long as they were kept in the fund. But this is where they got brilliant, in the plutocratic sense--you could establish such a fund in anticipation of the disability of your child, or the anticipation of producing a child with a disability. All the while, the normal return on the investment of the money remained tax free, and was distributed to the parent(s). But it got even better, because after the age of 23, the child (whether disabled or not) could assume the trust, and take the distribution of the return, for their disabled child, or in anticipation of producing a disabled child, or any child at all, which child might become disabled. More than 25 years later, you can bet people who had the money to make it worthwhile are still taking distributions of money from such trusts.

You couldn't pull that off in the United States (or at least i doubt you could) becuase it wouldn't stand the light of day in the Congress.

Let's look at the reality here RG..
Federal INCOME tax only makes up 50% of government revenues. (Less than that in the current recession) So the argument is that the rich pay a larger percentage of 50% of revenues. Sure they do because it makes up for the much smaller percentage they pay in FICA.

IF we include employer and employee FICA -
A person making $50,000 gross with a taxable income of $35,000 would pay $7650 in total FICA or the 15.3% published rate of gross and 21.9% of taxable income.
A person making $500,000 in salary with taxable income of $380,000 would pay $13,144 in total SS and 14,500 in Medicare for a total of $27,644. That means the person making $380,000 taxable income would pay 5.53% of gross income in FICA and 7.27% of their taxable income.

Simply give the first person a tax rate of 10% and they pay 31.9% of taxable income in taxes.
Give the person making 380,000 an income tax rate of 28% and they are only paying 35.27%... Take the figure from the WSJ of 23% and they are paying 30.27% of their taxable income.. LESS than the person making $35,000


The numbers are actually more complex because investment income would be not subject to FICA or the higher tax rates reducing the tax burden for the person making $500,000. I also didn't do the exact calculations for taxes the person making $35,000 pays 15% on much of their income. The person making $380,000 would pay 33% on $150,000 of their income but less than 28% on $135,000 of their income.

I haven't included excise taxes which also takes a larger percentage from the lower income worker.

This portion of the Wikipedia article on capital gains explains, in rather simple terms, how the wealthy can benefit from capital gains income. They can pay as little as 15% on capital gains, and they can shelter the monies in legal tax havens.

I found this article convincing:

http://www.newyorker.com/talk/financial/2010/08/16/100816ta_talk_surowiecki


excerpt:

It's simple really, because they can afford to.

"2, the rich can afford to pay much higher rates without significantly damaging their lifestyle or ability to engage in society. If they aren't meaningfully harmed by the tax rates, there's no reason not to charge them, because we need the money!"


I guess helping your neighbor isn't a family value after all.


Don't they reap more benefit for the activities that drive the reasons for the taxes? Defense spending, infrastructure (although that's suffered in the last 25 years.)

I'd be all for a flat tax, as long as there are no deductions.

There would still be too many loopholes. Someone wealthy enough can setup a corporation and pay their expenses through it and make it have zero profit. I wonder how much a person like Trump spends for his lavish lifestyle out of his own income?

The rich will always take advantage of their position, that's how they got rich, unless they were born on 3rd base.

This whole attitude that the rich pay too much taxes is pure bullshit.

I guess I'm a freaking communist.

I could not agree more.

Cycloptichorn

As usual, Mr. Gentel you are completely full of crap. The majority of people don't "simply mind placing a higher societal burden on a different group." That is such a superficial observation that you should be ashamed of for such weakminded misdirection. You don't quantize fairness on a ledger book by columns.

btw Since you were allegedly raised as some sort of Christian, you might want to read up on what Jesus had to say on such things about quantizing fairness.

Luke 21
The Widow’s Offering
1 As Jesus looked up, he saw the rich putting their gifts into the temple treasury. 2 He also saw a poor widow put in two very small copper coins. 3 “Truly I tell you,” he said, “this poor widow has put in more than all the others. 4 All these people gave their gifts out of their wealth; but she out of her poverty put in all she had to live on.”

It has never been about how much one gives, but about how much remains.

You look a lot like a bloke I saw being interviewed on the Max Keiser report. Was it you? (Genuine question, I'm not trying to suggest anything)

You're not a communist, Frank. You're a mensch.