THE U.S. IS A LOW-TAX COUNTRY

[JamieDimonsBalls]

This winter I had to kick a child off our basketball team. He was very disruptive. ADHD and his inability to control impulsive behavior was simply too much. It was hard because I knew the best thing for the kid was to remain on the team. I tried to do things to help him and work around the challenges, but ultimately he was preventing the other eleven from learning.

How old was this?

 

[Digressions]

Good luck….enjoyed your posts. Wishing you very few hangups with planting season.

Thank you, good sir.

 

[Digressions]

How old was this?

3rd grade

 

[crazed_hoosier2]

The tax shelters described weren't used extensively...

I may respond to this post more later.

But this comment here is just flat wrong. There are a variety of ways we could examine this. But maybe the easiest one is to look at average federal tax rates from before and after both Reagan tax cuts ('81 and '86). It was here where they got rid of all the tax shelters. They also lowered the top marginal income tax rate from 70% to 28%. So let's look at the effect on average tax rates...

Given the lowering of the marginal rates, is there any other explanation for the relatively modest downward movement after 1981 in the average tax rate actually paid?

 

[outside shooter]

And federal tax revenues as a %GDP during that period were also not very different from what we see nowadays - ~16% GDP.

There are way more super wealthy now as opposed to back then. You used to be a billionaire if you OWNED a big conglomerate

Now any CEO, CFO, hell even a board member of a top 100 company is up there

 

[snarlcakes]

Thank you, good sir.

May you be blessed with many beers, boobs, and Bitcoins.

 

[Digressions]

I may respond to this post more later.

But this comment here is just flat wrong. There are a variety of ways we could examine this. But maybe the easiest one is to look at average federal tax rates from before and after both Reagan tax cuts ('81 and '86). It was here where they got rid of all the tax shelters. They also lowered the top marginal income tax rate from 70% to 28%. So let's look at the effect on average tax rates...

Given the lowering of the marginal rates, is there any other explanation for the relatively modest downward movement after 1981 in the average tax rate actually paid?

Quickly off the top of my head, they lowered the rate and broadened the base. There were only 10,000 households in the top bracket according to your first link. How many were in the top tax bracket in '89?

IOW (rough numbers) the top 1% got a 42% tax cut. The 20-2% got a 2% tax cut.

 

[crazed_hoosier2]

Quickly off the top of my head, they lowered the rate and broadened the base. There were only 10,000 households in the top bracket according to your first link. How many were in the top tax bracket in '89?

IOW (rough numbers) the top 1% got a 42% tax cut. The 20-2% got a 2% tax cut.

I don’t know how many were in the top bracket.

But my point is that, if the tax shelters they removed weren’t used extensively, wouldn’t you expect to have seen a much larger fall-off in average tax rates than what these were?

 

[Digressions]

I don’t know how many were in the top bracket.

But my point is that, if the tax shelters they removed weren’t used extensively, wouldn’t you expect to have seen a much larger fall-off in average tax rates than what these were?

I understand your question and point. The problem is the chart you posted has nothing to do with tax shelters. It is showing merely average rates. You can’t discern anything wrt tax shelters.

What your chart does show is that while we know the top earners got a huge tax break, the bottom quintile got a tax increase, and the top 20-whatever% got very little.

I think 33M people were in the top bracket vs 10k households at 92%. Again just a quick glance.

I will try to find time to look some of this up tonight.

 

[crazed_hoosier2]

I understand your question and point. The problem is the chart you posted has nothing to do with tax shelters. It is showing merely average rates. You can’t discern anything wrt tax shelters.

Of course you can.

Average tax rate is the bottom line rate paid on all of the dollars on the top line of income, prior to any deductions. Naturally, because the income tax is marginal, you're paying different rates on different dollars as you climb the scale. But the average is calculated by simply dividing the total tax liability by the gross income.

So if you earn $1,000,000 and pay $250,000 in federal income taxes, you have an average tax rate of 25% -- even if the rate paid on the last dollar is the highest marginal rate of 37% and even if your AGI was, say, $800,000.

The reason this chart demonstrates that the tax shelters were used a lot is that the significantly lowered marginal rates (in 1981, the top marginal rate began dropping from 70% to 50% -- in 1983, the top rate for married filers was 50% for income above $109,400) only resulted in marginally lower average tax rates.

Had the tax shelters been more or less moot as you're suggesting, you'd see a drop in average tax rates that would more closely mirror the decrease in marginal rates.

 

[JamieDimonsBalls]

3rd grade

That's tough. By that point, you have to start being able to handle yourself in a group. Surprising that even basketball direction/instruction was too much. I was diagnosed as a kid, but never needed as much push on the attention side for sports or activities that I really enjoyed.

 

[Digressions]

Of course you can.

Average tax rate is the bottom line rate paid on all of the dollars on the top line of income, prior to any deductions. Naturally, because the income tax is marginal, you're paying different rates on different dollars as you climb the scale. But the average is calculated by simply dividing the total tax liability by the gross income.

So if you earn $1,000,000 and pay $250,000 in federal income taxes, you have an average tax rate of 25% -- even if the rate paid on the last dollar is the highest marginal rate of 37% and even if your AGI was, say, $800,000.

The reason this chart demonstrates that the tax shelters were used a lot is that the significantly lowered marginal rates (in 1981, the top marginal rate began dropping from 70% to 50% -- in 1983, the top rate for married filers was 50% for income above $109,400) only resulted in marginally lower average tax rates.

Had the tax shelters been more or less moot as you're suggesting, you'd see a drop in average tax rates that would more closely mirror the decrease in marginal rates.

How old are you, @crazed_hoosier2?

 

[crazed_hoosier2]

How old are you, @crazed_hoosier2?

Old enough to be considering hearing aids.

 

[Digressions]

Old enough to be considering hearing aids.

Do you still believe Vermont is a good example of why healthcare is scarce, and that the state is suffering from long lines due to an increase in people in the state being covered? Just a yes, or no, please.

 

[crazed_hoosier2]

Do you still believe Vermont is a good example of why healthcare is scarce, and that the state is suffering from long lines due to an increase in people in the state being covered?

Well, healthcare is scarce - in Vermont and everywhere else. That has nothing to do with belief. It’s just the case.

As to the reason their healthcare system is imploding, I don’t think it’s just because of their near universal coverage rate in the state. But, obviously, they’re suffering from classic shortage symptoms - and that would be a part of it.

It’s not only long lines. Their biggest insurer is nearing insolvency and 9 of their 14 hospitals are losing money.

 

[Digressions]

Well, healthcare is scarce - in Vermont and everywhere else. That has nothing to do with belief. It’s just the case.

As to the reason their healthcare system is imploding, I don’t think it’s just because of their near universal coverage rate in the state. But, obviously, they’re suffering from classic shortage symptoms - and that would be a part of it.

It’s not only long lines. Their biggest insurer is nearing insolvency and 9 of their 14 hospitals are losing money.

Fair enough.

 

[Digressions]

Of course you can.

Average tax rate is the bottom line rate paid on all of the dollars on the top line of income, prior to any deductions. Naturally, because the income tax is marginal, you're paying different rates on different dollars as you climb the scale. But the average is calculated by simply dividing the total tax liability by the gross income.

So if you earn $1,000,000 and pay $250,000 in federal income taxes, you have an average tax rate of 25% -- even if the rate paid on the last dollar is the highest marginal rate of 37% and even if your AGI was, say, $800,000.

The reason this chart demonstrates that the tax shelters were used a lot is that the significantly lowered marginal rates (in 1981, the top marginal rate began dropping from 70% to 50% -- in 1983, the top rate for married filers was 50% for income above $109,400) only resulted in marginally lower average tax rates.

Had the tax shelters been more or less moot as you're suggesting, you'd see a drop in average tax rates that would more closely mirror the decrease in marginal rates.

You originally held me to the 12 years when we were at 92%.

Also, regarding the 91% top marginal income tax rate, it should be noted that the tax base was very different for the 12 years that was the case. As such, there really wasn’t a whole lot of difference between the average tax rate on the top earners then vs. now.

According to your link- for the top 1%- when the top marginal rate was 92% the effective rate was 42%, when it was 70% (1979)the effective rate was 37%, and when it was 28%(1986) the effective rate was 25.5%.

Those numbers don't dispute my original point. They help make it.

And if you can find the actual amounts that were claimed as tax shelters then post that as evidence for your rebuttal. But don't use quintiles, and don't use a period of recession (i.e. 1979) when there might have been higher amounts of legitimate losses.

The point remains. When top marginal rates were higher, aggregate demand was artificially higher. As top marginal rates declined capital flowed away from consumption and moved toward investments. Away from the middle-class and toward the top 1%. To the point that our economy can no longer function without monetary intervention.

 

[crazed_hoosier2]

You originally held me to the 12 years when we were at 92%.

The data I found on average tax rates only went back to 1979. So that’s what I used - which I figured would illustrate the point well enough since it had data both before and after both of the Reagan tax reforms.

According to your link- for the top 1%- when the top marginal rate was 92% the effective rate was 42%, when it was 70% (1979)the effective rate was 37%, and when it was 28%(1986) the effective rate was 25.5%.

One thing to be careful about in evaluating tax burden is whether or not state/local taxes are included. The chart I posted was just federal income taxes.

But here’s some info comparing overall average tax rates (including state/local) in the 1950s and recently.

And here’s info about average federal income tax rates for the top 1% of filers in the 1950s.

So what’s the explanation for the discrepancy? The author offers 3 reasons. And the one I’m talking about is the one I’ve highlighted.

The point remains. When top marginal rates were higher, aggregate demand was artificially higher. As top marginal rates declined capital flowed away from consumption and moved toward investments. Away from the middle-class and toward the top 1%. To the point that our economy can no longer function without monetary intervention.

That’s not why we’re in trouble.

We’re in trouble because government has spent more than our economy can afford - and the Treasuries market doesn’t have nearly the demand to support it. This means they’ve had to rely on monetization to make up the difference. As of now, intragovernmental holdings account for nearly 1/4 of US Treasuries and that number is heading higher.

As it heads higher, we should expect to see a higher baseline rate of inflation.

One thing we absolutely agree on is that healthcare spending is a huge part of this. But we keep compounding it by piling on more bad solutions to the problems created by earlier bad solutions.

In short, we keep chasing the unicorn. And chasing it hasn’t made things better, it’s made things worse.

 

[DANC]

And you call yourself a patriot…

It’s examples like this why people’s belief in god is slipping

Spelling 'god' with a lower case 'g' can get you thrown in hell, sonny.

 

[DANC]

There were fabulously wealthy people when the top marginal rate was 92%. There was still a meritocracy when the top rate was 92%. America was great when the top marginal rate was 92%.

In my world, we have a lot shit breakdown. It's just comes with the territory. Sometimes the thing that breaks down is simple. You can see it. Sometimes it's internal and you have to understand what each part's function is to properly fix the problem. The best mechanics are the ones that understand what makes the machine function at a basic level. Anyone can be a parts changer.

This winter I had to kick a child off our basketball team. He was very disruptive. ADHD and his inability to control impulsive behavior was simply too much. It was hard because I knew the best thing for the kid was to remain on the team. I tried to do things to help him and work around the challenges, but ultimately he was preventing the other eleven from learning.

Having said all that, my time on the cooler is about to come to an end. I appreciate the forum. It's amazing the changes I see in it every time I come back from an extended absence. As always, thank you for allowing me to psychologically ejaculate all over your screens. I wish you guys well.

Ewwwww......

 

[Digressions]

The data I found on average tax rates only went back to 1979. So that’s what I used - which I figured would illustrate the point well enough since it had data both before and after both of the Reagan tax reforms.



One thing to be careful about in evaluating tax burden is whether or not state/local taxes are included. The chart I posted was just federal income taxes.

But here’s some info comparing overall average tax rates (including state/local) in the 1950s and recently.

And here’s info about average federal income tax rates for the top 1% of filers in the 1950s.

So what’s the explanation for the discrepancy? The author offers 3 reasons. And the one I’m talking about is the one I’ve highlighted.

That’s not why we’re in trouble.

We’re in trouble because government has spent more than our economy can afford - and the Treasuries market doesn’t have nearly the demand to support it. This means they’ve had to rely on monetization to make up the difference. As of now, intragovernmental holdings account for nearly 1/4 of US Treasuries and that number is heading higher.

As it heads higher, we should expect to see a higher baseline rate of inflation.

One thing we absolutely agree on is that healthcare spending is a huge part of this. But we keep compounding it by piling on more bad solutions to the problems created by earlier bad solutions.

In short, we keep chasing the unicorn. And chasing it hasn’t made things better, it’s made things worse.

Sorry, @crazed_hoosier2 , but we disagree and you've missed again.

Good night!

 

[BradStevens]

There were fabulously wealthy people when the top marginal rate was 92%. There was still a meritocracy when the top rate was 92%. America was great when the top marginal rate was 92%.

In my world, we have a lot shit breakdown. It's just comes with the territory. Sometimes the thing that breaks down is simple. You can see it. Sometimes it's internal and you have to understand what each part's function is to properly fix the problem. The best mechanics are the ones that understand what makes the machine function at a basic level. Anyone can be a parts changer.

This winter I had to kick a child off our basketball team. He was very disruptive. ADHD and his inability to control impulsive behavior was simply too much. It was hard because I knew the best thing for the kid was to remain on the team. I tried to do things to help him and work around the challenges, but ultimately he was preventing the other eleven from learning.

Having said all that, my time on the cooler is about to come to an end. I appreciate the forum. It's amazing the changes I see in it every time I come back from an extended absence. As always, thank you for allowing me to psychologically ejaculate all over your screens. I wish you guys well.

Back at you, Digressions. I think you're a model poster. I hope everything's OK in your real world.

The issue with the the child on your basketball team is a great example that we could discuss re current disciplinary and placement issues in public schools.

 

[BradStevens]

You originally held me to the 12 years when we were at 92%.
According to your link- for the top 1%- when the top marginal rate was 92% the effective rate was 42%, when it was 70% (1979)the effective rate was 37%, and when it was 28%(1986) the effective rate was 25.5%.

Those numbers don't dispute my original point. They help make it.

And if you can find the actual amounts that were claimed as tax shelters then post that as evidence for your rebuttal. But don't use quintiles, and don't use a period of recession (i.e. 1979) when there might have been higher amounts of legitimate losses.

The point remains. When top marginal rates were higher, aggregate demand was artificially higher. As top marginal rates declined capital flowed away from consumption and moved toward investments. Away from the middle-class and toward the top 1%. To the point that our economy can no longer function without monetary intervention.

Digressions, before you go, given you're championing a 92% marginal rate (or at least suggesting it), can you please opine on the proper rate for inheritance tax?

 

[Digressions]

Digressions, before you go, given you're championing a 92% marginal rate (or at least suggesting it), can you please opine on the proper rate for inheritance tax?

I honestly don't believe that we need to go back up to 92%. I just like pointing out that when America was great marginal rates were higher. There's utility in the tax code that shapes our economy. Tax rates aren’t just an avenue for revenues.

It's not a coincidence that lower marginal rates shipped jobs overseas. Increased wealth inequality. And shifted the amount of capital flowing into equities and away from consumption/demand.

Also, money is relative. We saw evidence of this throughout the pandemic relief. This should lead people to understand that the progressiveness(in the long term) has a different importance than the top marginal rate. The EITC also was evidence of this.

It wasn't that long ago-in my eyes- that we had a balanced budget as far as the eye could see. What led us to that place was adding a couple tax brackets at the top, and the EITC, which put money in the hands of people that had pent up demand.

I agree with JDB when he says the boomers are the worst generation in our history. When they were starting out, they had a tax code that favored entry level workers and allowed dynamism in our economy. The further they worked up through management the more the burden was lifted. They have taken full advantage of entitlements and have left us for broke.

Part of the American dream- at least in my view- is the option to choose delayed gratification. I'm very frugal in my personal life. Every dollar I don't spend is one less dollar my children will have to earn.

Unfortunately, because of our fiscal conditions taxes like inheritance, CG, and wealth may have to be considered to make up the difference. I don't believe in the wealth tax. It's not something that can be reasonably implemented. That just leaves the other two. I honestly don't know where inheritance taxes should start and what rates should follow. But it certainly is a way to get the boomers to pay us back. Like Jim said, their parents and grandparets didn’t use entitlements for 30 years.

Corporate taxes need to play a role, but I've rambled on long enough.

 

[crazed_hoosier2]

It wasn't that long ago-in my eyes- that we had a balanced budget as far as the eye could see. What led us to that place was adding a couple tax brackets at the top, and the EITC, which put money in the hands of people that had pent up demand.

Are you referring to the late 90s?

 

[Digressions]

Are you referring to the late 90s?

Yes

 

[Digressions]

Are you referring to the late 90s?

Here is something to pontificate while I'm hauling today. What is value? How is it formed and what role does it play in our markets?

How has value changed since our economy shifted to a service economy? For context, let's assume I am correct and assets bubbles have formed due to our expanding wealth inequality. What detriments, if any, are there to the accumulation of the value of the underlying asset based on that fundamental switch in the economy?

 

[BradStevens]

Here is something to pontificate while I'm hauling today. What is value? How is it formed and what role does it play in our markets?

How has value changed since our economy shifted to a service economy? For context, let's assume I am correct and assets bubbles have formed due to our expanding wealth inequality. What detriments, if any, are there to the accumulation of the value of the underlying asset based on that fundamental switch in the economy?

Do you know any economists that support the notion that wealth inequality causes asset bubbles? I’ve never heard that connection before.

 

[crazed_hoosier2]

Here is something to pontificate while I'm hauling today. What is value? How is it formed and what role does it play in our markets?

How has value changed since our economy shifted to a service economy? For context, let's assume I am correct and assets bubbles have formed due to our expanding wealth inequality. What detriments, if any, are there to the accumulation of the value of the underlying asset based on that fundamental switch in the economy?

Can I first engage with one of your premises?

"....due to our expanding wealth inequality."

My first glance at wealth (as opposed to income) inequality is that it's been flat for the past 15 years. In fact, it's even receded a tiny bit. Most other countries have had larger widening or narrowing over that period. Ours is high, but flat.

My source for this is Visual Capitalist. Their source is the annual Global Wealth Report put out by UBS.

I haven't found much data on the Wealth Gini going back farther than that. I did find some wealth distribution data going back to 1989 on Wikipedia.

I highlighted the sentence in the top paragraph about stock market exposure -- and how the bottom 50% of households have very little of it. And this is why I'll go to my grave saying that we missed a massive opportunity in 2005 to reform Social Security in such a way as to give all working people some measure of equity in the capital markets. Why we didn't do that is beyond me (actually, it's not beyond me...I have a good idea why we didn't do it, but I'll save that for another thread).

Anyway, the wealth inequality data going back to 1989 seems in line with movement in the Income Gini (they're two different metrics, calculated using the same methodology...this is why the numbers are so much lower)...which saw income inequality grow in the 1980s and early 1990s...but has flattened out since then. Since then, it's bounced between 40 and about 41.5.

I write all this to ask: are we really experiencing "expanding wealth inequality"? It seems to me like it's been flat for quite some time. To the degree that we have experienced it, it has mostly to do with the fact that low income people have virtually nothing in the way of capital assets.

Given that, shouldn't we be looking for ways to get them invested in capital assets? In fact, this might be more important now than it ever has been. Because the value of unskilled labor is low and I don't see anything on the horizon that is going to increase it. Increasing immigration, increasing global trade, increasing automation, etc. None of this portends well for people on the low end of the income scale.

If we want to increase their wealth, we should be taking a second look at things like Social Security reform. Or is the goal only to narrow the wealth gap? Because, quite honestly, I don't think it would be a good thing for us to deliberately reduce or restrain the wealth of wealthy people...for any number of reasons.

 

[crazed_hoosier2]

Do you know any economists that support the notion that wealth inequality causes asset bubbles? I’ve never heard that connection before.

I haven't either. And I was going to ask the same question.

But, right now, I'm taking issue with the premise that our wealth inequality has been expanding. It clearly did between the late 80s and today. But it hasn't expanded since at least 2008.

 

[snarlcakes]

Do you know any economists that support the notion that wealth inequality causes asset bubbles? I’ve never heard that connection before.

I know what drives asset bubbles.

Spoiler

It's dirty, filthy, disgusting fiat money. And yes Bitcoin fixes this. People can store their wealth in sound money, rather than monetizing people's homes.