Tax reforms I would like to see

Just saw a news item that the Republicans in the US Congress refused to endorse a plan that would place a 39.5% tax on net income over a Million dollars a year.
I'm obviously from a different culture and or missing something. Remember that the well to do's net taxable income is after the fancy accountants have applied all possible loopholes.
When a reasonable estimate of required family income is $30,000 for survival, $50,000 for comfortable and $100,000 for well to do; it would seem that someone on $1,000,000 a year had far more money than was needed for living as well as anyone would want. So if they earned $2,000,000 net why would they object to only getting an extra $605,000 over and above the first Million? You can only eat one meal at a time, wear one set of clothes, or drive one car. Greed?

Coming back later, I'd like to preempt a typical response by arguing against the premise that hard working people deserve the big money, while time servers only deserve the basic wage. I've worked closely with both; the shop floor factory hand and the CEO, and have seen fools and heroes in both categories. The premise that a bank CEO is worth $10 Million a year because they contribute 200 times the benefit of a hard working producer on $50,000 is simply ludicrous. Some European countries have proposed a 100% tax on salaries over $2 Million, and been told that the top people would go elsewhere if they did that. In Australia we have in recent years had some overpaid hired guns come in, collect big packages, and leave chaos behind.
Greed doesn't equate to competence.

The problem is not just the level of tax rates. its also the problem of balancing them in such a way that there are no loopholes that allow people to make arge portions of their tax that they should be paying disappear. In New Zealand earlier this year, there was a married dentist pair who had set up a trust for their business. they were the only ones working for the business, and the only trustees. all the business income went into the trust, and was then used by them. each was earning around $250 thousand a year, but they were paying tax on around $40 thousand total, between them, and at the lowest tax bracket level. this pair alone owed the government almost half a million dollars in taxes from the last few years because the tax rates for business are lower then that of peole, and trusts have lower interest rates still. a tax rate only matters if you can get people to pay it.

Just saw a news item that the Republicans in the US Congress refused to endorse a plan that would place a 39.5% tax on net income over a Million dollars a year.
I'm obviously from a different culture and or missing something. Remember that the well to do's net taxable income is after the fancy accountants have applied all possible loopholes.
When a reasonable estimate of required family income is $30,000 for survival, $50,000 for comfortable and $100,000 for well to do; it would seem that someone on $1,000,000 a year had far more money than was needed for living as well as anyone would want. So if they earned $2,000,000 net why would they object to only getting an extra $605,000 over and above the first Million? You can only eat one meal at a time, wear one set of clothes, or drive one car.

The problem is a cost/benefit analysis of working vs not working. For example if the tax on that extra million was 100% no one would work overtime or go the extra mile in any way once that magic $1 Million was reached. There would be no benefit to the work and so why not play? On the other hand, if the tax was 0% the majority would go to that extra effort, which increases tax revenue through added economic activity. As the tax rises from 0% toward 100%, more and more people will opt to quit working harder and start playing instead. The trick to maximize tax revenue is to find the sweet spot in the middle getting the most taxes out of the millionaires without going so far as to discourage economic activity produced by additional work.

This is particularly important when considering small businesses, which in the US pay taxes at the individual rates. So for example, if a small business with 3 employees makes $1million by November, what is the incentive to hire more staff and work hard throughout the big shopping month of December if taxes are too high?

Greed?

Humans being humans greed is a very strong motivator. It can be a societal good in MODERATION as it stimulates people to work hard and produce more economic activity which is generally good for the society at large. Of course, in excess it leads to problems like Enron, Wall street destroying the economy, Bernie Madoff etc. So the key here is effective rules and regulations to keep greed down to manageable levels. The difficulty is that whenever there is a problem such as the above governments tend to add a heap of new regulations, which turn out in the end to be ineffective. What is needed is an in depth analysis of CURRENT regulations. We need to find out which ones work and keep those, then REMOVE all the regulations which are ineffective, and only then add new regulations to fill identified gaps. It will never happen though as congress etc get too many adoring soundbites from the media for proposing new regulations that sound good without any serious investigation by the "media" to determine if the proposals will actually do as they claim.

Sitting here in Australia in 2013 (we're ahead of you backward lot) I note that the US is now going over the fiscal cliff. Whether that will have any real life consequence assuming they belatedly fix it before the Stock Markets open tomorrow I'm not sure.
I'm probably too simple to understand such complex matters but I can't see how a householder can balance their budget and all the politicians and bureaucrats in the world's biggest economy can't.
Increase your income by raising taxes on the top end to something that will still be below just about every other country's (say 40% on net personal income over $1M), and reduce spending over time. Having the courage to use indirect taxes to force other savings in the economy wouldn't hurt. Why the biggest selling personal transport style in the US is 2 ton +, big engined, four door pick ups and 4X4s is beyond me? If fuel prices and fees were higher you would end up with fuel efficient vehicles that would save the national economy a fortune in oil reserves.

I'm in the US and as near as I can tell they paint themselves into corners and try to follow pet theories about economics but then only do half the theory and call it good. Basically their incompetent but none of us seem to be able to figure out how to get a competent bunch in. My theory on that is that no one sane would want to do it or deal with all the crap that comes with it.

Daryl wrote:Sitting here in Australia in 2013 (we're ahead of you backward lot) I note that the US is now going over the fiscal cliff. Whether that will have any real life consequence assuming they belatedly fix it before the Stock Markets open tomorrow I'm not sure.
I'm probably too simple to understand such complex matters but I can't see how a householder can balance their budget and all the politicians and bureaucrats in the world's biggest economy can't.
Increase your income by raising taxes on the top end to something that will still be below just about every other country's (say 40% on net personal income over $1M), and reduce spending over time. Having the courage to use indirect taxes to force other savings in the economy wouldn't hurt. Why the biggest selling personal transport style in the US is 2 ton +, big engined, four door pick ups and 4X4s is beyond me? If fuel prices and fees were higher you would end up with fuel efficient vehicles that would save the national economy a fortune in oil reserves.

Daryl wrote:Sitting here in Australia in 2013 (we're ahead of you backward lot) I note that the US is now going over the fiscal cliff. Whether that will have any real life consequence assuming they belatedly fix it before the Stock Markets open tomorrow I'm not sure.

I haven't watched your markets recently, but the assumption that we're going over the cliff is already built into the last 2 1/2 weeks of American market performance. There's been a steady, slow slide that I'm predicting is going to get more intense as time goes by and people realize that there really *isn't* any chance of getting a good, sensible, non-political posturing solution.

The American government is broken. Reality no longer plays a significant factor, only political pet theories and pledges.

Nope US Federal Government is functioning exactly as designed.

Consider there was ~450,000 vote difference between Republicans and Democrats in the votes cast for _all_ the members of the House of Representatives.

The president is having difficulty in getting the votes to pass a budget proposal. No surprise as he couldn't get an actual budget passed when his party controlled both houses. Just look at this as a failure on his part to fix this in the last twelve months. Remember when he proposed a budget that had 14 trillion increase in the US Government Debt in the next ten years and nobody voted for it. Even in his own party. Somehow that got lost in the media about a week after he put it forth.

Once again to point out the obvious the US government shortfall is approximately equal to the total Personal income taxes paid. Been that way for four years now.

So 80-100 billion(the President's proposal) more does not balance the budget(misses by about a factor of ten+). The Democrats burned all their credit in cutting in the future capital. They have promised to do it at least since President H.W. Bush, which cost him an election.

To be entirely honest, since November, I am all for going over the cliff. Way too many reasons for this to start to mention any. Is it going to hurt, hell yeah. But guess what even going back to the President Clinton tax rates isn't going to balance the budget. I think I saw 600 billion mentioned as the revenue generated. To balance the budget would take twice that and then some.

Enjoy the New Year,
T2M

RandomGraysuit wrote:...snip...

The American government is broken. Reality no longer plays a significant factor, only political pet theories and pledges.

shirt term pain, long term gain T2M?

Nope. Just the start of the pain. Not really much gain.

Real pain will start sometime in the future, can you spell Greece. We Americans are headed in that direction. Only real question is how long we can paper over the cracks. Longer it takes the worse it will be.

Some minor facts.

From BEA Table 2 Line 16 (2011) "Government social benefits to persons" =2,274.3 Billion. Line 4 "Wage and salary disbursements--Private industries" = 5,466.0 Billion. Line 3 "Wage and salary disbursements--Government"=1,195.3 Billion.

When Government Jobs and Social Benefits are more than 63% of the private sector wages it is pretty much unsustainable. Especially when the total income taxes (to all levels of government) equals 116% of the total wages of government employees.

Like I said too many thoughts to be worth posting, probably shouldn't even have posted those.

T2M

PS Not to mention that it looks like we will continue to kick the can down the road by what the US Senate did last night. In 2010 those earning 369k paid 355 billion on taxes at a rate of 23.39% In 2000 they paid at a rate of 27.45%. So if we go back to that rate the Federal government gets 61.6 billion. Or about 4.6% of the debt for 2011. Oh those cuts, we find out about them in 2 months, I think I have heard this before.

Spacekiwi wrote:shirt term pain, long term gain T2M?