Where is the US economy headed?

Cyc, taxes are generally considered progressive or regressive in their effects on the populace, not strictly on whether they have a graduated rate or not. Sales tax is regressive even though the actual rate of taxation on consumption does not increase with lower incomes. It's correct to say "a progressive tax" is one where the rate increases depending on the amount taxed, but a tax may be progressive or regressive without being "a progressive tax". Semantics, weird, yeah yeah, but in this sense "progressive" and "regressive" are useful terms to describe the effects of that tax on the population.

Avatar ADV wrote:

Cyc, taxes are generally considered progressive or regressive in their effects on the populace, not strictly on whether they have a graduated rate or not. Sales tax is regressive even though the actual rate of taxation on consumption does not increase with lower incomes. It's correct to say "a progressive tax" is one where the rate increases depending on the amount taxed, but a tax may be progressive or regressive without being "a progressive tax". Semantics, weird, yeah yeah, but in this sense "progressive" and "regressive" are useful terms to describe the effects of that tax on the population.

Thanks for the support. "Graduated" is the term pertinent to the disagreement. A graduated income tax is not the only "progressive" tax, and cyclops, you have accused me of silly and ignorant arguments, but I think you need to retract the accusations.

Read your own definition, cyclops. You are only applying it to income, when it can also be applied to spending, such as that which sales tax applies.

Also, the example of poor people paying the same sales tax for expensive items, thats true, but it is also true that rich people can dodge income tax by using the exemptions and loopholes, but the fact remains that the income tax is described overall as progressive.

A progressive tax is a tax imposed so that the tax rate increases as the amount to which the rate is applied increases. The term "progressive tax" can be applied to any type of tax. It is frequently applied in reference to income taxes, where people with more disposable income pay a higher percentage of that income in tax than do those with less income.

Also, the example of poor people paying the same sales tax for expensive items, thats true

but it is also true that rich people can dodge income tax by using the exemptions and loopholes

but the fact remains that the income tax is described overall as progressive.

If we are going to talk about the overall effect of taxation, and whether or not that it is progressive or regressive in terms of the effect upon different levels of consumers - fine. But you can't say that a tax is progressive just because rich people buy more expensive items. That's a misunderstanding of the term.
Cycloptichorn

Cycloptichorn wrote:

If we are going to talk about the overall effect of taxation, and whether or not that it is progressive or regressive in terms of the effect upon different levels of consumers - fine. But you can't say that a tax is progressive just because rich people buy more expensive items. That's a misunderstanding of the term.
Cycloptichorn

Cyclops, I am willing to back off on that, as technically you are correct, but the fact remains that whether the sales tax is regressive or not, rich people still buy more stuff and more expensive stuff. It would be more akin to a flat tax, and if you want to categorize that as regressive, fine. However, the fact remains that if a sales tax exempts food, it has been made slightly progressive, so on that count, you need to back off.

Okie is correct in that the regressiveness of the sales tax is limited in that there are certain items which are exempt from sales tax - food and shelter expenses, for example. However, it's still a regressive tax, in that BOTH the rich and poor enjoy the exemptions, and the poor are still paying the tax on the rest of their income (which becomes consumption) while the rich only pay the tax on the portion of their income which becomes consumption, not on the portion that they use for investment/savings.

Property taxes, sales tax, gasoline taxes, stamps, even Social Security and Medicaid - these are all highly regressive taxes in that they are the same no matter what level of income you make. Therefore they effect the poor to a far greater degree than the rich.

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Going into an economic discussion with the attitude "screw the rich" typically isn't going to end well. How do you propose to do it? Remember, if you upset the economic applecart, -everyone- gets screwed; in fact the rich get screwed less, inasmuch as their superior resources let them ride out tough times easier.

Okay cyclops, I have given time to reflect on the argument, and I stick by my assertions, but I have some refinement to it. I wish to address the progressive / regressive tax squabble for now, and later if you wish to carry it on, about the Laffer curve some more.

Check this site for the simple definitions of progressive, regressive, and to be accurate, a third type, flat tax.

http://www.investorwords.com/3892/progressive_tax.html

The definitions are:

Progressive Tax:
A tax system in which those who earn higher incomes pay a higher percentage of their income than those with lower incomes. A graduated tax is one example.

Regressive Tax:
A tax that takes a larger percentage of the income of low-income people than of high-income people.

Flat Tax:
A system in which all levels of income are taxed at the same rate.

Add to this the defintion you cited from:
http://en.wikipedia.org/wiki/Progressive_tax

A progressive tax is a tax imposed so that the tax rate increases as the amount to which the rate is applied increases. The term "progressive tax" can be applied to any type of tax. It is frequently applied in reference to income taxes, where people with more disposable income pay a higher percentage of that income in tax than do those with less income.

Cyclops, I highlighted bold the observation that progressive can be applied to any type of tax.

To go back to your assertion, and I quote you:

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Property taxes, sales tax, gasoline taxes, stamps, even Social Security and Medicaid - these are all highly regressive taxes in that they are the same no matter what level of income you make. Therefore they effect the poor to a far greater degree than the rich.

Now, to set the record straight per the definitions, I do not think you can say with certainty that property taxes, sales taxes, or gasoline taxes are regressive. They are flat, and then the argument comes into whether poor people pay a larger portion of their worth or income, or budgets on these items than the rich. Keep in mind the rich may own many properties and very expensive properties, and they buy alot more stuff, and they use alot more gasoline and own more vehicles.

In the case of sales tax, if necessities as food are excluded, the tax becomes slightly progressive, because poor people should spend a higher proportion of their budget on groceries than the rich do, so the rich would end up paying the tax on a higher proportion of their spending budget, thus it is slightly progressive.

Concerning Social Security and Medicaid, I never have argued that these are progressive. First of all, they are retirement programs, supposedly, not a true tax, but if they are considered a tax, Social Security is regressive because it untaxes income over a certain threshold, which benefits those higher wage earners.

One question I have for the experts, when applying the terms to a sales tax, are the terms determined by the rates of taxation on spending of the rich vs the poor, or is it determined by the rates of sales taxation in comparison to their income, or is it compared to net worth, or ? This all gets a little murky, because the income tax is definitely considered progressive, but some people with a very high net worth may be richer, but may be taxed less than a poorer person by virtue of not showing a high income on the tax return.

Agreed. In fact, if we screw the rich too much, it is akin to killing the goose that laid the golden egg. We should be celebrating the rich, at least those that legitimately produce something worthwhile, which I would not personally include movie stars, but I would very definitely include oil companies for example. Everyone should wake up each day and thank their lucky stars that rich oil companies exist.

okie, YOu need to learn about supply and demand. Movie stars are in the group that allows them the multi-million dollar contracts. Not all actors earn that kind of money - same as in professional sports. You need economics 101 for starters, then you won't post idiotic opinions.

You are mistaking the definition of progressive/regressive if you think the amount or cost of goods purchased makes any difference at all. It makes no difference. What matters is how high the tax is as compared to the level of income of the person in question.

NO, our overall level of taxation becomes slightly more progressive. The sales tax itself doesn't change. As I said before (did you read?) a sales tax which was progressive would charge different rates to different people. We don't have that.

BS. We had periods of high growth during times when the marginal tax rates were far higher then they are today. Those high tax rates didn't stop investment then, and the low ones we have today have not translated into greater growth than we saw then. This is a false argument, that higher tax rates lead to no progress as a society.

Cycloptichorn

I think you are mistaken here, cyclops. A progressive tax does not require a graduated tax by definition. Progressivity can be achieved in other ways. Charging different rates to different people is not required to make it progressive either. If you do not tax items or necessities that both poor and rich people normally consume, but keep the sales tax for merchandise that are not necessities, for which people with higher incomes and more wealth would increasingly purchase, then you have made the sales tax progressive.

In fact, excluding necessities from sales tax would be akin to the graduated tax with respect to not taxing up to a threshold. In the case of income tax, no tax is applied up to a threshold because of the standard deduction and dependents, etc. Then graduated rates are applied above that, furthering its progressivity. Same principle with sales tax that excludes necessities, wherein no tax is charged for the necessities, and then tax is applied beyond that point. Such a sales tax would most definitely constitute a progressive sales tax.

I think you are ignoring the effects of economic growth, as compounded, over a long period of time. All you need to do is play around with an amount of money, then apply an annual interest rate to the money over a long period of time, say 50 years. Then inject a slightly smaller interest rate over a period of 5 or 10 years early on, and then calculate how that can affect the final result. As Avatar has pointed out, tax rates, including high marginal tax rates have both a short term and long term effect.

To be accurate, I am not in favor of running huge deficits. I see this deficit problem as a huge gap in philosophy, with Democrats pulling for more spending and more taxation, and conservatives pulling for less spending and less taxation. The problem arises because politicians are caving to the demands of the citizenry for more and more spending and services, this being done by electing politicians that promise more. Those that do not promise more have a tougher time being elected, so conservatives are frustrated, and see tax cuts as a way to apply pressure on the tug of war of spending.

Also, throw in the factor that tax cuts can and do generate higher tax revenues, and the argument continues over where we are on the Laffer curve.

I think we are left of the peak, but we are not that far to the left of it. If we could raise tax rates without liberals increasing spending, I would be more in favor of it, but I do not see that as likely. So I continue to see lower tax rates as the best hope of stemming the tide of more spending, and just hope we can grow our way out of the deficits, as Gingrich proved could be done. He did it once.

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I think you are mistaken here, cyclops. A progressive tax does not require a graduated tax by definition. Progressivity can be achieved in other ways. Charging different rates to different people is not required to make it progressive either. If you do not tax items or necessities that both poor and rich people normally consume, but keep the sales tax for merchandise that are not necessities, for which people with higher incomes and more wealth would increasingly purchase, then you have made the sales tax progressive.

In fact, excluding necessities from sales tax would be akin to the graduated tax with respect to not taxing up to a threshold. In the case of income tax, no tax is applied up to a threshold because of the standard deduction and dependents, etc. Then graduated rates are applied above that, furthering its progressivity. Same principle with sales tax that excludes necessities, wherein no tax is charged for the necessities, and then tax is applied beyond that point. Such a sales tax would most definitely constitute a progressive sales tax.

Nope. Repeat after me, Okie: Excluding items from a tax does not make the tax itself any more progressive or regressive!

You are conflating two separate issues: progressivity of an individual tax and progressivity of our overall tax code. They aren't the same thing, at all.

You can't simply make up new definitions for things, I'm sorry.

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I think you are ignoring the effects of economic growth, as compounded, over a long period of time. All you need to do is play around with an amount of money, then apply an annual interest rate to the money over a long period of time, say 50 years. Then inject a slightly smaller interest rate over a period of 5 or 10 years early on, and then calculate how that can affect the final result. As Avatar has pointed out, tax rates, including high marginal tax rates have both a short term and long term effect.

This doesn't actually mean anything at all. It certainly doesn't address the fact that we saw high, and in some cases much higher, levels of growth when the marignal rates were far higher than they are today. Also, there is no actual evidence that higher marginal tax rates have a negative effect on the economy overall. Certainly it isn't as if people just up and stop investing because their tax rate is 35% instead of 31%. Especially given the levels of money involved.

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To be accurate, I am not in favor of running huge deficits. I see this deficit problem as a huge gap in philosophy, with Democrats pulling for more spending and more taxation, and conservatives pulling for less spending and less taxation. The problem arises because politicians are caving to the demands of the citizenry for more and more spending and services, this being done by electing politicians that promise more. Those that do not promise more have a tougher time being elected, so conservatives are frustrated, and see tax cuts as a way to apply pressure on the tug of war of spending.

This is a different conversation, but I will point out that massive increases in spending occured under Reagan, Bush sr., and Bush junior. In fact, the rate of gov't spending has gone up more under Republican rule than it has under Dem rule in the last 30 years - by a lot. So what you have written here is nothing more than a myth. And this,

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Also, throw in the factor that tax cuts can and do generate higher tax revenues, and the argument continues over where we are on the Laffer curve.

Is absolutely untrue. It has never once been proven that tax cuts lead to higher revenues. Ever. You are misunderstanding statistic if you believe that it does prove this.

BY DEFINITION tax cuts produce lower revenues. When we are running a deficit, this effect is greatly compounded as it also increases the time it takes to pay off our debt, which adds to the overall lost revenue of the cut as interest takes more and more of our money away and into service payments. Your argument is that tax cuts can make the economy grow at a faster rate, so fast in fact that the lower rate of taxation is made up for by the higher rate of revenues returned overall - and there is zero evidence that this is true. I challenge you to provide it to me, and I'm looking for actual evidence, not a Heritage Foundation paper full of lies.

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I think we are left of the peak, but we are not that far to the left of it. If we could raise tax rates without liberals increasing spending, I would be more in favor of it, but I do not see that as likely. So I continue to see lower tax rates as the best hope of stemming the tide of more spending, and just hope we can grow our way out of the deficits, as Gingrich proved could be done. He did it once.

Gingrich had never proven anything of the sort, and noone else has either. The fact that you forget about the tax rates being much higher on the rich in the 90's is sort of laughable.

Cycloptichorn