“Having the government take 52-63% in taxes isn’t too much! How dare he complain? He should be happy we don’t take it all!”
Except they don’t take that much. That’s the estimate of his combined top marginal rate, the amount he pays on his last dollar. See, what anti-tax advocates rarely understand (or at least won’t admit to understanding) is that our tax laws are progressive…. that’s in mathematical terms, not just political ones.
I’ll give you a simplified example using a much smaller economy than we actually have. Say we have tax brackets in the country spaced $20,000 apart, and the richest people in the country have income in the range of $100,000.
Say the lowest tax bracket is $0-$20,000 and it has no taxes. $20,001-$40,000 pays 5%, $41,000-$60,000 pays 10%, $60,001-$80,000 pays 15%, $80,000-$100,000 pays 20%, and anybody making more than $100,000 pays the top marginal rate of 25%.
Now say you’re a fabulously wealthy person in this society, earning $100,000… but this year you earned a hundred dollars more. Now, you’re probably thinking “Last year, I worked hard enough to get $100,000 and got to keep $80,000. This year I worked harder and I ended up with $75,075! The system is broken!”
Except you’re wrong in just about every particular.
A tax system like that would be broken, and would provide people with disincentives to earn and more incentives to hide income. That’s why it doesn’t work that way.
You ever do you own taxes? You ever notice how instead of just telling you the percentage per bracket, the booklet tells you exactly how much you owe for a range of dollar values? That’s because multiplying by a straight percentage wouldn’t work. And the reason it wouln’t work is that the rates are marginal.
Your fortune of $100,100 a year? The first $20,000 of that is not taxed, because that’s the tax rate for that bracket. The first $20,000 you earn in a year is not taxed any more than the only $20,000 someone who is that much less well off than you earns is.
The second $20,000 is taxed at 5 percent. You only give up $1,000 of it to pay for your part of our shared responsibilities to each other, the infrastructure and machinery of society that makes it possible for you to exist and make money as an individual. So far this means you’ve paid $1,000 out of $40,000, or 2.5%. Your top rate is 5%, but you’re only paying 2.5%.
The third $20,000 is taxed at 10 percent, so you’re paying $2,000 out of it. Thus you’ve paid $3,000 out of $60,000. Your top rate is 10%, but you’re only paying 5%.
The fourth $20,000 is taxed at 15 percent, so you’re paying $3,000 from it. You’ve earned $80,000 and paid $6,000… 7.5%.
The fifth $20,000 is taxed at 20 percent, so you’re paying $4,000 from it. That’s a total of $100,000 earned an $10,000 ($1,000 + $2,000 + $3,000 + $4,000) paid out… so already you’re doing better than you thought you would be based on the idea that the top marginal rate for this bracket was 20%. You’ve actually only paid 10% in taxes. 20% on the portion of your income that hits this bracket, but 10% overall.
So most years you earn $100,000 and take home $90,000. So what happens when you earn another $100 and go up to the highest bracket? You pay 25% of that, keeping 75 dollars for yourself. The actual total tax rate you’re paying, in terms of the percentage of your income that you’ve paid, barely budges from the fact that you’ve strayed across the line into the highest income bracket.
You see? With a system like this, you will never reach a point where earning a dollar more means you have less take-home pay than you would have had if you hadn’t earned that dollar.
(Perversely, while our system protects the rich in this manner, the very poor can and do frequently find themselves penalized for getting a little extra money. But of course, the rich and their paid advocates have a lot more say in how the system works than the very poor.)
Now, you might be thinking that this is all very well and good, but why have higher rates for richer people at all? The answer is basically threefold.
First, it has to be said that the more money you have, the less a dollar means.
Imagine your life divided into three different eras. In the first, you’re just starting out and struggling, earning barely a thousand dollars a month before tax. In the second, you are prospering and bringing in ten thousand dollars a month. In the third, you’re still prospering and business investments you were able to make in your second era are also paying off, and so you’re getting a hundred thousand dollars a month.
Now imagine giving up a percentage chunk of your income, spread across all these eras. Let’s say a modest 10%. Can someone living on $1,000 a month give up $100 of it? Depends on where they live, but the answer is often no. At the very least, you’d be feeling the pinch. It would significantly impact your ability to pay bills, buy groceries, and otherwise meet your basic needs… much less have any money to put aside in savings or to invest or to build a business for yourself.
10% of $10,000 is a $1,000… now, in stark numbers, that’s more than a $100. And in proportional terms, it’s the exact same portion of your income, obviously. But in practical terms? $1,000 out of a $10,000-a-month-income is way less of an impact than $100 out of a $1,000. Chances are you’ll still be meeting basic needs and having surplus income before and after the tithe. You’ll have to make a few more choices with the 10% tax than without, but they’ll be choices you can afford to make.
And then we come to the $100,000 a month income level. Again, $10,000 is clearly more than $100. But making $90,000 in a month instead of $100,000 is not a hardship on any level, is it? There is almost no circumstance in which you wouldn’t end the year with more money than you started. Even if you poured all your excess earnings into a business or a home, that’s still an asset that’s worth money.
And this pattern continues no matter how far out we extrapolate it. At $100,000 a month, you can be a multimillionaire after just a few years of relatively modest living. But let’s say you’re making a million a month. At 10%, you’d be paying $1.2 million in taxes… but you’d still be able to live as a multimillionaire even if you spent everything and saved nothing. If you were earning $10 million a month… you’d be paying $12 million in taxes, but it would be almost nothing to you. You’d have $108 million a year at your disposal. Would you rather have $120 million? Yes, of course, but what’s the actual difference in terms of how you live your life and what opportunities you have?
And that’s only the first reason that progressive tax plans make sense.
The second reason is… well, this is going to get tricky, because so far I’ve been talking about math. And I have a feeling that you can ignore math if it conflicts with your worldview, but I think you’ll ignore this even harder.
See, the second reason that that progressive taxes make sense is that the richer you are, the more you’re benefiting from the infrastructure of society and from everyone else’s hard work.
No, it’s true! I know you like to believe the opposite, but this is the simple truth and I’ll illustrate it with a simple example. Say in a mining camp there are 100 people: 99 workers, and one owner. The owner’s parents put up a stake for their child to start a business and earn a fortune, and the owner used that together with some boarding school chums or college friends as investors to get the mine started, and now the mine is producing a ton of money. Enough that the owner could have paid back the parents, if they expected to be paid back.
Now, the “success equals hard work” school of thought tells us that the owner is the hardest working person in the mining camp… if the miners worked harder, they would be richer. Ipso facto.
But does that make any kind of sense?
The miners are engaged in actual labor. The owner put up other people’s money and is now reaping profits on other people’s labor. I’m not saying the owner didn’t have to hustle a bit to get the operation put together, but no amount of hard work would have put the miners in the same position the owner was in by default.
The mine owner had to compete for success, but not against everyone. Only against the people with the means to compete at the same level.
The mine owner’s operation depends on the existence of infrastructure: roads, power lines, water, etc. The mine puts greater strain on these things than 100 people would otherwise use.
Given that the mine owner is reaping a disproportionately large benefit from everyone else’s contributions to society, doesn’t it make more sense to ask the mine owner to pay a similarly larger share back?
And finally, there’s the third reason, which is simple utility. Society needs things. The public needs things. And trying to pay for them by taking from the least well-off of us is not only cruel, it’s ineffective. As long as money keeps concentrating at the top in greater and greater amounts, it will be necessary to keep concentrating taxes up there, too.
Not to “punish” the wealthy or “redistribute” the wealth… ask yourself, when in U.S. history have taxes changed who the millionaires are, and the answer is never. Even when top rates were higher than they are today (i.e., virtually all the time when we’ve had income taxes), it didn’t actually shift the social order any.
No, taxes must be concentrated at the top because that’s where the money is. The rich get richer. You know what would happen if the government did step in and forcibly redistribute some wealth, the way you all are afraid it would? Say there’s a special tax on millionaires and the proceeds of that tax are divided up among every person in the country equally. You know what happens to those dollars? You’re envisioning a bunch of poor people with money they didn’t earn, but you know what a poor person does with money? Spend it. What else can they do? At any given day they’re going to be in need of something or behind on something, there’s no chance that money will end up being hoarded and taken out only to lord over the wealthy the fact that they have a dollar that doesn’t belong to them.
And where does money go when it’s spent? Well, ideally it passes through as many hands as possible on the way up, but eventually, it ends up in the hands of the people who have cast the widest possible net to receive it… the wealthy. Everybody else, when they get a dollar, they will spend it, passing it on to someone else. Only the people who have enough excess money to begin with will get a dollar and not spend it, and it will stay in their hands forever, the most useless thing in the world, an unspent dollar. An uncirculated unit of value. A little bit of economic potential gone to waste.
So all that money that is theoretically redistributed, it would buy people food and medicine, it would bolster the profits of businesses large and small, it would create consumer confidence and quicken the economic lifeblood of our country… but at the end of the day most of it would end up in the hands of the wealthy again, where it would do nothing for anyone, ever again.
Money was not meant to be hoarded, it was meant to move. Money’s not even an actual thing, it’s a medium of exchange. What’s a medium of exchange when nothing’s being exchange? It’s nothing. Wasted potential.
The more money you have, the less it’s going to move, and the closer to the top of the chain you’ll be spending it when you do.
To make a very long story very short, an economy that doesn’t tax the rich is not going to be sustainable.
I love these.
Fuck you, Mitt.
This post is wonderful.
THE FUCKING BABY ONE THO OMFG
lol being bitchsmacked by his daddy like wtf how easily the rich do forget
like is money the river lethe or something
or did I miss the memo
possibly I missed the memo because I don’t know what I did with my last $5
This may be one of the most enjoyable things I’ve seen of late.
….basically i fall apart at any mention of the phrase “dancing horse”
Don’t forget to register to vote (GOTTAVOTE.COM) so you can make sure this asshole never becomes president.
Mitt Romney is in a bit of hot water for comments he made during a closed-door fundraiser about the 47% of Americans who don’t pay federal income taxes.
I’m generally pretty sympathetic to people saying stupid things in closed-door fundraisers, but the whole flap raises an interesting question: Is it really true that 47% of Americans pay no federal income tax? And who are these people? And do they believe that they are victims entitled to health care and housing?
How many people don’t pay federal income tax in the US?
Lots of people. The 47% stat is accurate, as long as you only count federal income taxes. (More than 85% of Americans under 65 pay either income tax, federal payroll tax, or both—and almost all Americans who own land and/or buy things pay state and local taxes.)
Who are these people?
Many elderly people who live off social security pay no income tax (social security benefits are only taxable if your total income is over $25,000 a year). Only about 25% of Americans over the age of 75 pay federal income tax, but it’s important to remember that most of them did pay federal income tax when they were working.
Also, many young adults pay no income taxes, because they are full-time students or have very low incomes. You can see a chart here that shows that about 30% of 18-year-olds pay federal income tax, while over 65% of people in their 40s do.
People living in poverty are also unlikely to pay federal income taxes. A married couple filing jointly making under $18,700 annually pays no income taxes. But it’s worth noting that in 1996, 99.5% of all nontaxable returns came from people making less than $30,000 a year. Today, that number is closer to 76%.
The fastest growing segment of Americans who pay no tax are those who earn between $75,000 and $100,000 each year. As explained here, there’s been a 12,000% increase in nontaxable returns in this income category thanks to middle income tax cuts and tax credits introduced by both George W. Bush and Barack Obama.
Romney’s central mistake is imagining the data as static. In 2000, for instance, I paid no federal income tax. This doesn’t mean that I am a drain on the system: In fact, I have paid lots of federal income tax in other years. 2000 just happened to be a weird year, because I had a lot of health care expenses and not very much income.
This is the case for most Americans: Romney’s comments implied that the same 47% of Americans pay no federal income taxes every year. In fact, the members of that 47% are constantly changing as people age into and out of the work force.
Do these people believe that they are victims entitled to health care and housing?The most incendiary remark Governor Romney made was, “There are 47% who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care of them, who believe that they are entitled to healthcare, to food, to housing, to you-name-it.”In fact, the number of Americans who feel the government should provide health care and food to those in need is much higher than 47%. 76% of Americans (including a majority of Republicans) favor medicaid, the program that offers health care to the poor. A majority of Americans also believe medicare, the program that offers health care to the elderly, is worth its cost. And more than three quarters of Americans support the federal food stamp program that provides food to low-income and elderly people.
”When Americans talk about folks like me paying my fair share of taxes, it’s not because they envy the rich. It’s because they understand that when I get tax breaks I don’t need and the country can’t afford, it either adds to the deficit, or somebody else has to make up the difference - like a senior on a fixed income; or a student trying to get through school; or a family trying to make ends meet. That’s not right. Americans know it’s not right. They know that this generation’s success is only possible because past generations felt a responsibility to each other, and to their country’s future, and they know our way of life will only endure if we feel that same sense of shared responsibility.” — President Barack Obama.