You're quoting nominal rates and not effective taxation. The very wealthy don't pay their "marginal dollar" in "income tax" at a 37% federal bracket (plus state), they pay it in capital gains tax at 20%. If they pay it at all, given that in fact much income at these levels is sheltered from tax entirely via international tricks.
There's plenty of analysis out there showing how the very wealthy in the US pay less effective tax than middle class families. That's not "empty rhetoric". It's a genuine problem and something we should be trying to solve.
Capital gains is 20% federal plus state (13% in California). Germany’s capital gains rate is 30.5%, lower than California and New York. Regardless, there is just not enough capital gains income for that to matter. For example, Biden’s plan to tax capital gains as ordinary income for taxpayers making over $1 million per year is expected to bring in less than $50 billion a year in revenues. Eliminating the capital gains preference entirely would raise only $130 billion annually.
As to the “very wealthy”—Tim Cook’s tax rate on his $135 million bonus a few years ago was 52%. The people you’re talking about aren’t even ordinary wealthy people: CEOs, movie stars, and the like. What you’re talking about the Warren Buffets of the world that make money through investments. But there’s just not very many of those people. The IMF estimates the global cost of individual tax avoidance at $200 billion per year: https://www.imf.org/external/pubs/ft/fandd/2019/09/tackling-.... Say half that is attributable to the US. That’s about the same as the cost of the deductions for mortgage interest and local property taxes.
Federal, state, and local governments tax more than $5 trillion annually. One party is proposing new spending amounting to several trillion more annually. In the face of those numbers, talking about $50 billion or $100 billion issues with respect to the taxation of the very wealthy is indeed empty rhetoric. You hear a lot of talk about billionaires this and billionaires that. The total income of all billionaires in the US is $130 billion, or about 1% of all income. It just doesn’t matter very much what the tax rate is on people who comprise only 1% of the tax base. Spending 90% of your time talking about tax issues that could fund at most 10% of your proposed new spending is empty rhetoric. Meanwhile, German levels of taxation on the middle class, and a German-style VAT would raise trillions annually. Guess why nobody talks about that.
Capital gains is 20% federal plus state (13% in California)
But long term capital gains are not indexed to inflation, so the effective rate is higher for long-held appreciated assets... like real estate. This is part of why turnover of real estate is suppressed in high appreciation areas, even outside of CA.
> Tim Cook’s tax rate on his $135 million bonus a few years ago was 52%
This is the kind of selective data that makes this subject so infurating to argue about. I'm sure this fact is true. But what you're trying to imply is that Tim Cook's overall tax payments were very high, and that's not remotely true at all! A bonus is one of the few bits of income he has, in fact, that is taxed as routine "income" that the rest of us pay. Almost everything the guy makes is in long term assets, and those are absolutely not taxed at 52%.
Tim Cook shouldn't pay a lower tax rate than I do. And while I don't have numbers for Cook specifically, I'm pretty sure he does. Everyone in that world pays less tax than I do. And they shouldn't.
There’s nothing selective about my data. I gave the top line numbers—Biden’s proposal to eliminate the preferential capital gains rate on people with more than $1 million a year in income would raise only $50 billion annually. Cook’s bonus is just an illustration of why that number is so low—even very wealthy people make most of their money through ordinary income. Capital gains amounts to just 5% of all income.
Most economists agree that capital gains should be taxed lower than ordinary income, which is why most developed countries including social democracies have preferential capital gains rates.
And again, why do you care about the taxation of the super wealthy so much? Even if we taxed capital gains at the level of Denmark (9 points more than California) would raise less than $70 billion a year. Even Warren’s completely bonkers wealth tax (which would have had a top rate four times higher than Sweden did before it got rid of the wealth tax) would have raised only 10% of what Warren was proposing in new spending. Why spend so much time talking about a potential source of revenue that would do so little to actually increase the government’s ability to provide social services—even if we taxed the wealthy far in excess of European countries?
It’s as massive effort in deception. People don’t want to put their money where their mouths are. They want Medicare for All—but only if someone else pays for it. If proponents of these social were forthright in asserting that wealth taxes or whatever would only pay for 10%, and European-style taxes on the middle class would be required to pick up the rest of the tab, support for these proposals would evaporate: https://www.cato.org/publications/commentary/millennials-soc...
> When tax rates are not explicit, millennials say they’d prefer larger government offering more services (54 percent) to smaller government offering fewer services (43 percent). However when larger government offering more services is described as requiring high taxes, support flips and 57 percent of millennials opt for smaller government with fewer services and low taxes, while 41 percent prefer large government.
For what it’s worth, I’m pro paying higher taxes. I’d be happy to pay what people in Germany pay at my tax bracket. But only if middle class taxes also go up. Otherwise, there is no point—we won’t be able to tackle the big ticket items like universal healthcare without the trillions in revenue we could raise through a 10% VAT, a 10% payroll tax, etc.
> And again, why do you care about the taxation of the super wealthy so much?
This is always the retreat: "OK, taxation is unfair, but you can't prove there's a problem so it doesn't really matter, does it?"
I say: taxation is unfair, and we should make it fair instead of constantly trying to justify the fact that the very wealthy (who are, relative to US society, wealthier than they have ever been and getting steadily wealthier) are paying less tax than you or I do. Let's start there.
To wit: why are you so invested in the regressiveness of current taxation policies? Shouldn't you at least accept that we should make it fair?
If it was fair, maybe you'd have an easier time convincing the hippies not to try to pay for your health care or whatever.
Most economists agree that taxing capital income lower is more efficient, and our capital gains rates are in line with those of Germany, Sweden, etc., so that all seems fine to me. I don’t want to be to the left of France or Italy on tax policy. That seems insane to me.
Beyond that, taxes are just a means to an end. I accept that taxes are necessary for providing social services. So I find it extremely disingenuous to focus so much on a potential source of tax revenue that won’t cover 90% of what we need to provide universal healthcare, etc. I find it disingenuous when people like Warren talk about Medicare for All (which by her own math will cost $30 trillion over 10 years) and then spend the rest of the speech talking about wealth taxes (which by her own math would raise only $3-4 trillion over that same period), and then also promise not to raise taxes in the middle class. It’s rank manipulation: you’re trying to make voters believe we can pay for these services through higher taxes on the rich, and burying in the fine print the fact that the middle class will have to pay 90% of the bill. (This manipulation also undermines the prospect of us ever getting universal healthcare, because no real plan can achieve that without the massive middle class tax increases you’ve convinced voters are unnecessary.)
The motivation seems to be more focused on taking money away from certain people (because “the billionaires shouldn’t exist” or some such tripe), than raising the money we need to pay for social services people supposedly want, and figuring out how to do that with minimal distortion to the economy. I think that’s a toxic brand of politics. It’s also a departure from what other developed countries are doing. Economists agree that the most efficient sort of tax is consumption taxes, which is why every OECD country relies heavily on VAT. (If our taxation profile was the same as Spain’s, payroll and consumption taxes would go up $2 trillion per year, while income taxes—paid mainly by the rich—would actually go down $1 trillion per year.) So this rhetoric seems both spiteful and empirically unwise.
You keep misdirecting. Sure, our nominal capital gains policies are roughly in line with the rest of the world. But our overall tax fairness is not. So something doesn't match up, and the answer is the way our tax regime is enforced and regulated. Let's make that match Europe. Would you agree there?
> The motivation seems to be more focused on taking money away from certain people
I straight up told you what my motivation was, and it wasn't that.
I like your posts on this topic. Talk to wealthy EU citizens about their tax rates. They hate them. And bringing that model,here won't fund the social plans we are told we need.
Why? There just too few people in that echelon for higher taxes to make a dent.
So one might think these pushers of more social aid might realize, "ok we have to raise taxes on the middle class to get the funds we need... and introduce a national sales tax (VAT) that everyone, even the poor, must pay."
Do they say that? Do they come to that conclusion?
No, they imstead promulgate ideas such as wealth ceilings: anything you earn over 100 million is taxed 100%. There can be no billionaires.
I think you're strawmanning. No one in this thread is talking about "social aid" programs or budgets for them, the subject at hand is tax fairness. At least you'll agree that the US tax regime, as it's implemented right now, is unfairly regressive, right? And that should be fixed, at least as far as it goes? Bezos currently pays less tax than I do, and he should at least pay that much, right?
> No, they imstead promulgate ideas such as wealth ceilings: anything you earn over 100 million is taxed 100%. There can be no billionaires.
I'm sorry... who is saying this? This isn't a serious policy promoted by anyone that I'm aware of.
The history section is particularly interesting especially the recent history. I hear this talk all the time on social media.
> Bezos currently pays less tax than I do, and he should at least pay that much, right?
I don’t know your earnings, but let’s assume it’s under $1M annually. I do not believe you pay more in gross taxes than Jeff Bezos. If you paid more, you would likely have $0.00 remaining. What is your source for how much tax he pays? It is likely in the millions.
I don't know why you say hundreds of billions of dollars isn't worth taking about, compared to trillions. $150B is 15% of $1T, a sizable chunk. And the total income of US billionaires being just $130B doesn't quite capture the complete picture, when their combined wealth is in the trillions, and their assets keep growing.
>> when their combined wealth is in the trillions, and their assets keep growing.
Because capital gains, ironically, do not apply to gains in capital assets. They have to "realize" the gains as "income", usually by selling the asset. So a millionaire (stockholder) can become a billionaire without ever paying a cent in capital gains tax. Only when they sell the stock is it subject to taxation.
This allows them to pay tax selectively. Even if they want a chunk of money all at once, they can take a loan against their capital assets. There is no income realized when taking a loan. They then selectively sell stock to pay down the loan, preferably in years when they are taking a loss in some other area, nullifying the taxable gain on the asset sale. Such tricks are why, for billionaires, paying capital gains tax is basically voluntary.
You can grow your wealth without virtually no taxable income. It's real wealth - you can buy houses and yachts with it - but you don't need to pay tax unless you choose to.
In reality most money at this level is made by speculation, and speculation is spectacularly under-taxed.
For example Forex trading in the City of London moves $6.6 trillion of money around, every single day. A Tobin Tax of 0.1% on that would raise $2.5tn a year - which would almost instantly wipe out the UK's entire national debt.
Of course you'd lose some transaction volume - you might earn "only" $500bn - but the principle remains. A lot of economic activity isn't taxed at all, mostly to the benefit of the rich. This has huge effects on the quality of life of most of the population.
There's a principle you won't find in econ books, which is that in an industrial economy basic maintenance spending isn't optional.
If you don't pay for good education, you pay for it in lost economic activity. Likewise for infrastructure. And health care.
The idea that these are somehow nice extras that the population shouldn't expect because they're "too expensive" is so wrong it's borderline insane.
Everyone pays anyway. You may as well organise this properly so the work gets done and prosperity increases, because the alternative is instability, loss of opportunity, and ultimately a real risk of complete social and economic collapse.
> For example Forex trading in the City of London moves $6.6 trillion of money around, every single day. A Tobin Tax of 0.1% on that would raise $2.5tn a year - which would almost instantly wipe out the UK's entire national debt.
Traders can just move money to other trading system, e.g. futures, or they can just stop trading and instantly gain $2.5T a year in saved taxes, which is equivalent of UK's entire national debt!
If you want to capture these $2.5T, you need to close borders and tax these traders physically, one by one, like Soviet Union, China, North Korea, etc.
"Net value taxation" may be the future. How much were you worth last year? How much are you worth today? Net = income. We would need exceptions for things like houses, but such an approach would capture all capital gains in real time.
Why do you care how much paper money someone has? As you recognize, they can’t do anything with that—buy houses, yachts, lobbyists, etc.—without realizing the gains. So why does it matter what they are worth in paper?
There's plenty of analysis out there showing how the very wealthy in the US pay less effective tax than middle class families. That's not "empty rhetoric". It's a genuine problem and something we should be trying to solve.