This graph is truly enlightening if we highlight the start of the Great Depression on it.
Allowing the rich to not pay into the system widens the income gap until...
Meanwhile people who will never hit the top tax bracket vote for these tax cuts because, naively, they believe "they'll make it someday". Truly a tragedy of the commons.
Twenty-five percent of your income counts as "not paying into the system?" Wow. When I see those tax rates of 90% I wonder what the definition of slavery really is. The top income-earners in this country pay far more than their share of the total tax outlay, but everyone wants more. Higher taxes are a poor substitute for fiscal responsibility and fidelity to our founders' intentions of limited government.
Twenty-five percent of your income counts as "not paying into the system?" Wow. When I see those tax rates of 90% I wonder what the definition of slavery really is. The top income-earners in this country pay far more than their share of the total tax outlay, but everyone wants more. Higher taxes are a poor substitute for fiscal responsibility and fidelity to our founders' intentions of limited government.
Meanwhile people who will never hit the top tax bracket vote for these tax cuts because, naively, they believe "they'll make it someday".
Using this logic, I must only gay rights and free immigration because I "naively" believe I'll someday be gay or an illegal immigrant. This is garbage. People, in general support tax cuts for a variety of reasons and not all of them need be a reflection on their own pocketbooks, past, present, or future.
As for the chart in question, I'd be interested in seeing both a complimentary chart showing the percentage of the population in the highest tax bracket as well as a chart showing the total inflation-adjusted dollars contributed by that tax bracket. I think those results would be enlightening. Standing alone, this chart says almost nothing.
Tigre- Look at the years the top bracket tax rate was at 90%- during and after World War II, then Vietnam. The government was funding their actions with taxes instead of sending the country into crippling debt.
It sounds like you don't know how tax brackets work. They were not getting 90% of their income taken away, or 35% now. All the money they make beyond the maximum of the next-to-top bracket was taxed at that percent. Everything beneath would be taxed at a lower rate. Perhaps you should watch this video- http://www.khanacademy.org/video/basics-of-us-income-tax-rate-schedule?playlist=Finance
I was thinking about this last week. Imagine if the top tax rate over $250,000 was negative, meaning that those who made over $250,000 would not pay any taxes, and in fact would be paid a bonus by the government.
Wouldn't this drive companies to cut expenses in order to drive up short-term profits? Eliminate R&D, since that is a short term expense. Eliminate marketing. Eliminate advertising. Eliminate employees that focus on customer service. Do whatever it takes to drive up that profit so that the government gives you even more money.
So doesn't it stand to reason that if the top bracket is very high, companies would do the opposite? Increase R&D, increase marketing, increase advertising, add employees that focus on customer service, do whatever it takes to reduce profits below the confiscatory bracket?
So why is everyone insisting that cutting taxes is going to help employment? Seems like the opposite needs to be done.
The chart says nothing about tax deductions, which are the reason many super rich people pay no tax at all. We should also tax corporations who send all their manufacturing to other countries--that really would help the employment picture here.
One of the definitions of a Third World country is wealth distribution to a tiny percentage of the population, and a tiny middle class. We are heading in that direction rapidly.
But then, if the Republicans make us default, the world economy will go into a tailspin, and we'll all go down the drain. Except the very rich, of course.
CelticDragon, do you think it's okay to be a slave for a month, a week, or even a day?
As for your first assertion though, there is no correlation between the top marginal tax rate and federal tax receipts: http://www.heritage.org/budgetchartbook/income-tax-receipts
To Anonymous, did you learn debate skills from a second-grader?
tigre- Slavery: "the state or condition of being a slave; a civil relationship whereby one person has absolute power over another and controls his life, liberty, and fortune"
No idea what that would have to do with the subject, but there you go. I, too, was shocked to find out it isn't "anything I disagree with"
Tigre... There's a reason that the top tax brackets pay more taxes into the system than everyone else. It's because they make all the damned income. It's hard to pay taxes when you're broke.
Another thing to remember here when talking about 90% income tax brackets is that incomes were lower in terms of pure dollar amounts in the 1950s than they were today. The number of people in that bracket was negligible compared today.
People who earned that much money primarily earned it though capital gains, and that was taxed at25% at that the time those 90% taxes were in place.
One should also remember that tax sheltering was also possible to a greater extent at that time because the alternative minimum tax had not yet been instituted.
This chart http://images.vizworld.com/wp-content/uploads/2010/04/brackets.jpg while harder to read has more information.
One thing to note on that, before becoming overwhelmed, is to compare the Bush era tax profile to the clinton era profile. Can you really say that the Clinton era one was onerous? its a small tweak from clinton to bush, and yet it accounts for over 50 % of our current deficit.
It seems like it should be a no-brainier to roll the tax brackets back to the clinton era. Nevermind all this worry that were heading twoards 90% top income brackets.
I got this info a long time ago, but have never seen one that covers the MEDIAN tax rate, which I think is more useful. This top rate only applied to millionaires.
One thing this convinced me, though, was that Reagan's effort to bring down the taxes was a proper thing. No one should be paying 70% income taxes. That was ridiculous. And punitive. The rich people SHOULD have been angry and should have been trying to do something about it.
At the same time, the top rate of over 90% during WWII may have been much more fair, since the production of war goods probably increased incomes at the top level by a LOT. ~90% of 10 times the sales is a lot less than 70% of 100% of sales without the war.
As I understand it, yes, profits WERE pumped back into companies. If I am not mistaken, that was probably a partial reason why pension plans were instituted so much in the country. After all, why "spend" 90% in taxes just to make 10%, when you can take that 100% and do something useful with it?
Hmm.. what is the actual average rate? The data presented in this graph is mostly incomplete and probably misleading.
The amount of taxes paid is dependent upon the total tax paid, not the highest marginal rate over an unknown level. Is 90% the marginal tax rate imposed only on incomes over $1 Million (just to pick a hypothetical example), or is it 90% imposed over a level of $100,000? Big difference..
A much better comparison would be total average tax rate (taking the steps of the marginal rate and applying it to the income distribution). Or even better, to take the total *actual* average tax rate, net after deductions and allowances, and look at that.
Okay, everybody, this is how marginal tax rates work. I'm using numbers under $100 to make this example simple.
Say the tax rate is 10% on all incomes up to $50 a year. If you make $50, you pay $5.00 in taxes. Say also the marginal rate is 20% on incomes between $51 & $75 a year. So if you make $75, you pay $5 (that's ten percent on the first $50) plus another $5 (which is twenty percent of the $25 you have to add to your first $50 in income to get up to $75), for a total of $10 in taxes. Got that?
You're paying $10 on $75 annual income, which is a lot less than 20% of $75 (which would be $15).
It's called a MARGINAL rate because it's on the MARGINS.
So, if the tax rate is 20% on all income up to $100, and 50% on all income over $100, and you make $101 a year, you only pay 50% on the one dollar that's over the hundred dollar limit.
Don't cry for the ultra-wealthy. Even when the MARGINAL tax rate was 90%, they still had plenty left over to ensure their children were also ultra-wealthy.
I'm really bad at understanding graphs like this. Can you or one of your readers offer a descriptive text about it?
ReplyDeleteThis graph is truly enlightening if we highlight the start of the Great Depression on it.
ReplyDeleteAllowing the rich to not pay into the system widens the income gap until...
Meanwhile people who will never hit the top tax bracket vote for these tax cuts because, naively, they believe "they'll make it someday". Truly a tragedy of the commons.
Too bad we can't factor in the further reduction a clever accountant will get for his/her clients.
ReplyDeleteTwenty-five percent of your income counts as "not paying into the system?" Wow. When I see those tax rates of 90% I wonder what the definition of slavery really is. The top income-earners in this country pay far more than their share of the total tax outlay, but everyone wants more. Higher taxes are a poor substitute for fiscal responsibility and fidelity to our founders' intentions of limited government.
ReplyDeletehttp://www.ntu.org/tax-basics/who-pays-income-taxes.html
Twenty-five percent of your income counts as "not paying into the system?" Wow. When I see those tax rates of 90% I wonder what the definition of slavery really is. The top income-earners in this country pay far more than their share of the total tax outlay, but everyone wants more. Higher taxes are a poor substitute for fiscal responsibility and fidelity to our founders' intentions of limited government.
ReplyDeletehttp://www.ntu.org/tax-basics/who-pays-income-taxes.html
/forehead slap
shouldn't you be armed at a town hall somewhere?
ReplyDeleteMeanwhile people who will never hit the top tax bracket vote for these tax cuts because, naively, they believe "they'll make it someday".
ReplyDeleteUsing this logic, I must only gay rights and free immigration because I "naively" believe I'll someday be gay or an illegal immigrant. This is garbage. People, in general support tax cuts for a variety of reasons and not all of them need be a reflection on their own pocketbooks, past, present, or future.
As for the chart in question, I'd be interested in seeing both a complimentary chart showing the percentage of the population in the highest tax bracket as well as a chart showing the total inflation-adjusted dollars contributed by that tax bracket. I think those results would be enlightening. Standing alone, this chart says almost nothing.
Tigre- Look at the years the top bracket tax rate was at 90%- during and after World War II, then Vietnam. The government was funding their actions with taxes instead of sending the country into crippling debt.
ReplyDeleteIt sounds like you don't know how tax brackets work. They were not getting 90% of their income taken away, or 35% now. All the money they make beyond the maximum of the next-to-top bracket was taxed at that percent. Everything beneath would be taxed at a lower rate. Perhaps you should watch this video- http://www.khanacademy.org/video/basics-of-us-income-tax-rate-schedule?playlist=Finance
I was thinking about this last week. Imagine if the top tax rate over $250,000 was negative, meaning that those who made over $250,000 would not pay any taxes, and in fact would be paid a bonus by the government.
ReplyDeleteWouldn't this drive companies to cut expenses in order to drive up short-term profits? Eliminate R&D, since that is a short term expense. Eliminate marketing. Eliminate advertising. Eliminate employees that focus on customer service. Do whatever it takes to drive up that profit so that the government gives you even more money.
So doesn't it stand to reason that if the top bracket is very high, companies would do the opposite? Increase R&D, increase marketing, increase advertising, add employees that focus on customer service, do whatever it takes to reduce profits below the confiscatory bracket?
So why is everyone insisting that cutting taxes is going to help employment? Seems like the opposite needs to be done.
The chart says nothing about tax deductions, which are the reason many super rich people pay no tax at all. We should also tax corporations who send all their manufacturing to other countries--that really would help the employment picture here.
ReplyDeleteOne of the definitions of a Third World country is wealth distribution to a tiny percentage of the population, and a tiny middle class. We are heading in that direction rapidly.
But then, if the Republicans make us default, the world economy will go into a tailspin, and we'll all go down the drain. Except the very rich, of course.
CelticDragon, do you think it's okay to be a slave for a month, a week, or even a day?
ReplyDeleteAs for your first assertion though, there is no correlation between the top marginal tax rate and federal tax receipts: http://www.heritage.org/budgetchartbook/income-tax-receipts
To Anonymous, did you learn debate skills from a second-grader?
tigre- Slavery: "the state or condition of being a slave; a civil relationship whereby one person has absolute power over another and controls his life, liberty, and fortune"
ReplyDeleteNo idea what that would have to do with the subject, but there you go.
I, too, was shocked to find out it isn't "anything I disagree with"
I prefer this plot:
ReplyDeletehttp://images.vizworld.com/wp-content/uploads/2010/04/brackets.jpg
It may be too busy or hard to read for some, but it has much more information.
Tigre... There's a reason that the top tax brackets pay more taxes into the system than everyone else. It's because they make all the damned income. It's hard to pay taxes when you're broke.
ReplyDeleteAnother thing to remember here when talking about 90% income tax brackets is that incomes were lower in terms of pure dollar amounts in the 1950s than they were today. The number of people in that bracket was negligible compared today.
ReplyDeletePeople who earned that much money primarily earned it though capital gains, and that was taxed at25% at that the time those 90% taxes were in place.
One should also remember that tax sheltering was also possible to a greater extent at that time because the alternative minimum tax had not yet been instituted.
This chart
http://images.vizworld.com/wp-content/uploads/2010/04/brackets.jpg
while harder to read has more information.
One thing to note on that, before becoming overwhelmed, is to compare the Bush era tax profile to the clinton era profile. Can you really say that the Clinton era one was onerous? its a small tweak from clinton to bush, and yet it accounts for over 50 % of our current deficit.
It seems like it should be a no-brainier to roll the tax brackets back to the clinton era. Nevermind all this worry that were heading twoards 90% top income brackets.
I got this info a long time ago, but have never seen one that covers the MEDIAN tax rate, which I think is more useful. This top rate only applied to millionaires.
ReplyDeleteOne thing this convinced me, though, was that Reagan's effort to bring down the taxes was a proper thing. No one should be paying 70% income taxes. That was ridiculous. And punitive. The rich people SHOULD have been angry and should have been trying to do something about it.
At the same time, the top rate of over 90% during WWII may have been much more fair, since the production of war goods probably increased incomes at the top level by a LOT. ~90% of 10 times the sales is a lot less than 70% of 100% of sales without the war.
But why 94% during the 1950s?
NoPolitican -
ReplyDeleteVery good points.
As I understand it, yes, profits WERE pumped back into companies. If I am not mistaken, that was probably a partial reason why pension plans were instituted so much in the country. After all, why "spend" 90% in taxes just to make 10%, when you can take that 100% and do something useful with it?
Hmm.. what is the actual average rate? The data presented in this graph is mostly incomplete and probably misleading.
ReplyDeleteThe amount of taxes paid is dependent upon the total tax paid, not the highest marginal rate over an unknown level. Is 90% the marginal tax rate imposed only on incomes over $1 Million (just to pick a hypothetical example), or is it 90% imposed over a level of $100,000? Big difference..
A much better comparison would be total average tax rate (taking the steps of the marginal rate and applying it to the income distribution). Or even better, to take the total *actual* average tax rate, net after deductions and allowances, and look at that.
Okay, everybody, this is how marginal tax rates work. I'm using numbers under $100 to make this example simple.
ReplyDeleteSay the tax rate is 10% on all incomes up to $50 a year. If you make $50, you pay $5.00 in taxes. Say also the marginal rate is 20% on incomes between $51 & $75 a year. So if you make $75, you pay $5 (that's ten percent on the first $50) plus another $5 (which is twenty percent of the $25 you have to add to your first $50 in income to get up to $75), for a total of $10 in taxes. Got that?
You're paying $10 on $75 annual income, which is a lot less than 20% of $75 (which would be $15).
It's called a MARGINAL rate because it's on the MARGINS.
So, if the tax rate is 20% on all income up to $100, and 50% on all income over $100, and you make $101 a year, you only pay 50% on the one dollar that's over the hundred dollar limit.
Don't cry for the ultra-wealthy. Even when the MARGINAL tax rate was 90%, they still had plenty left over to ensure their children were also ultra-wealthy.