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JEleazarian
Trad climber
Fresno CA
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Apr 20, 2011 - 01:31pm PT
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Since we're talking about fairness and corporate taxes in the same thread, please answer me this: which individuals pay the corporate taxes? To clarify, corporations pay corporate income taxes in the same way that buildings and farms pay property taxes -- they don't. All taxes take money from individuals only. When we talk about individual income taxes, we know who pays. How can we talk about the fairness of corporate taxes unless we know the identities of the payors?
So again, please tell me which individuals pay corporate income taxes.
John
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Banquo
Trad climber
Morgan Hill, CA (Mo' Hill)
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Apr 20, 2011 - 03:15pm PT
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If a person makes a profit, they pay some of that profit as taxes. If a corp makes a profit, the same.
Who pays it? Everybody and nobody. Basically the tax system runs some of the circulating money through the government which it is supposed to use for the common good.
http://www.washingtonpost.com/wp-dyn/content/article/2007/06/27/AR2007062700097.html
Buffett cited himself, the third-richest person in the world, as an example. Last year, Buffett said, he was taxed at 17.7 percent on his taxable income of more than $46 million. His receptionist was taxed at about 30 percent.
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JEleazarian
Trad climber
Fresno CA
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Apr 20, 2011 - 03:28pm PT
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Who pays it? Everybody and nobody. Basically the tax system runs some of the circulating money through the government which it is supposed to use for the common good
If you don't know who pays it, how do you know if it's fair?
John
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Roger Breedlove
climber
Cleveland Heights, Ohio
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Apr 20, 2011 - 04:18pm PT
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Buffett cited himself, the third-richest person in the world, as an example. Last year, Buffett said, he was taxed at 17.7 percent on his taxable income of more than $46 million. His receptionist was taxed at about 30 percent.
I have never believed this quote about the receptionist's taxes, because I don't believe that payroll taxes should be comingled with income taxes.
Buffett's interview on NBC in 2008
The way he is counting is to include payroll taxes of 6.2% for Social Security plus 1.45% for Medicare.
The top Nebraska state tax on income above $54,000 is 6.84%.
To have 29.6% total tax, income tax plus payroll taxes, the receptionist would have to make $60,000 in taxable income.
However, if only the income taxes were included, the receptionist would have to make in $180,000 in taxable income to pay income taxes of 29.5%. This number would be comparable to Buffet's 17.7% and would point up the huge difference between income taxes and taxes on return to capital. While this is the accurate way to look at it, Buffet got more juice out of comingling income taxes with payroll taxes to pay the insurance premiums for Social Security and Medicare. I have never understood what he hoped to gain from this famous quote.
I do believe Buffet's taxes are 17.7% since most of his income is tax advantaged return-on-capital rates of one sort or another. (He makes $100,000 per year as Chairman of B-H on which he would pay Social Security and Medicare payroll taxes and federal and state income taxes.)
In the news clip, there is a reference to a progression consumption tax being a better system. I certainly agree with this.
Edited to reflect my misreading of the quote.
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Banquo
Trad climber
Morgan Hill, CA (Mo' Hill)
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Apr 20, 2011 - 04:21pm PT
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When my kids were little they would complain "it isn't fair!" I would always have to say no, it isn't fair and probably never will be but we are trying to make it as fair as possible. What clearly isn't fair is that big corps pay a lower rate than little and medium corps. Big income people pay a lower rate than middle income people.
"The history of taxation from the earliest ages has been the history of the attempts of one class to make other classes pay the expenses, or an undue share of the expenses, of the Government. Aristocrats have always been trying to shift the taxes on to the people, and the people on to the aristocrats; the landed interests on to the commercial and the commercial on to the landed. "
E. L. Godkin
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gunsmoke
Mountain climber
Clackamas, Oregon
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Apr 20, 2011 - 04:35pm PT
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Lies, Damn Lies, and Statistics.
One stat that I can unpack and understand is that the top 1% earn in the ball park of 20% of income and pay 40% of Fed Income Tax. If 40% isn't enough, what would be enough? 50%, 60%, 70%. Or maybe we should 2.5x their taxes and let them do the whole darn thing.
The "9 Things" that launched this thread seems to imply that since the states are ripping off the Poor with state and local taxes, the Fed should sock it to the Rich to make things fair. A saner approach is to take activism (and any anger) to the state and local levels where the real problems reside.
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stevep
Boulder climber
Salt Lake, UT
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Apr 20, 2011 - 05:11pm PT
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I don't think there is too much argument about the fact that the top 1% and particularly the top .01% have seen their incomes grow very fast over the last 20-30 years. The middle class has not seen anywhere near that kind of appreciation.
The question is more whether that is good for our country, and whether we want to do anything about it?
For a long time the Friedman conservatives have been arguing that lower taxes on the rich and less regulation will make the country and everyone better off through investment and trickle-down. I don't think that is the case if one looks at wage and job growth for most folks.
A secondary argument is that higher taxes would be a disincentive to work. Don't think that was the case from the 50s-70s. Taxes were much higher at the top and yet many people still founded great companies and worked hard in those years.
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froodish
Social climber
Portland, Oregon
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Apr 20, 2011 - 05:14pm PT
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A secondary argument is that higher taxes would be a disincentive to work. Don't think that was the case from the 50s-70s. Taxes were much higher at the top and yet many people still founded great companies and worked hard in those years
Indeed, it wasn't that long ago that the top marginal rate was 90%.
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Splater
climber
Grey Matter
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Apr 20, 2011 - 11:13pm PT
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I am not yet giving up on trying to get some of you to see a clearer picture of US tax & income status.
Keeping it simple, for 2010:
The top 400 taxpayers paid 17% in total federal income + payroll taxes.
Middle income to upper middle income workers typically pay about 22-23%.
(this is #3 out of the 9 things article)
This doesn't even include other taxes like state sales tax (highly regressive).
Gunsmoke, income taxes are only half the picture. Payroll taxes now bring in almost as much federal revenue as income taxes. http://www.heritage.org/budgetchartbook/federal-revenue-sources
Payroll tax brings in $890 billion, income tax $915 billion, corporate tax only $138 billion.
similar chart here: http://en.wikipedia.org/wiki/United_States_federal_budget
How much payroll tax do the rich pay?
http://www.politifact.com/truth-o-meter/statements/2011/apr/18/michele-bachmann/michele-bachmann-says-top-1-percent-pay-40-percent/
Crackaddict, your numbers from 1989 are missing the picture. Did you read Karls post? Increased tax on one group is important only if compared to their increased income. And the rich and superrich are the only part of the US that has done well in the last 30 years.
Once you add in highly regressive state taxes, the picture is even more clear. The average state total tax rate is on P 118 of http://www.itepnet.org/whopays3.pdf
The lowest 20% income group pay 10.9%, second 20% pay 10%, third 20% pay 9.7%, fourth 20% pay 9.3%, next 15% (.80-.95) pay 8.8%, next 4% (.95-.99) pay 7.8% and the very top 1% pay 6.4% total state tax rate.
Good graphs on the rising income of the rich & superrich:
scroll down to Fig 1 and 2 near the bottem of
http://elsa.berkeley.edu/~saez/saez-UStopincomes-2006prel.pdf
We're back to the same distribution as the 1920s.
More interesting links:
http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=2432&DocTypeID=2
http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=2435&DocTypeID=2
http://www.taxfoundation.org/news/show/250.html
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gunsmoke
Mountain climber
Clackamas, Oregon
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Apr 21, 2011 - 12:27am PT
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Splater,
A) Payroll tax means Social Security and Medicare in its various "Parts." These are, or at least were at the time their creation, programs in which individuals pay into the programs so they can draw out after retirement. This is not much different in concept than a retirement plan with forced particpation. Bill Gates paid into Social Security. Bill Gates will draw from it when he retires. General taxes are supposed to run the government including defense, highways, court systems, space programs, etc. You can't lump these two categories together as you would like.
B) After making your an attempt to discredit my position, you proceed to follow the same logic I exposed, to wit, proposing to use federal tax policy to undo faulty state tax policy.
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Roger Breedlove
climber
Cleveland Heights, Ohio
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Apr 21, 2011 - 07:43am PT
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Yeah for Gunsmoke's point A.
Almost all of our politicians and most news organizations are comingling income taxes and payroll taxes. I think there are lots of people that think that this is appropriate. Warren Buffet did in his famous quote.
Here is a simple test to determine if you really believe they should be comingled. What would you think if Ryan or Obama (this is non-partisan) were to propose that social security benefits were reduced across the board to pay for shortfall in discretionary federal spending, say funding tax cuts or paying for the wars?
You and your employers have ponied about 14% of your wage income to pay for those benefits.
Ask the same question about Medicare?
Anyone I know has always objected to the idea that retirement or medical care premiums should be used to pay for government spending (we are not talking about cash management at the treasury) but many of those same people seem to think that funding benefits for retirement and medical care should be paid out of general tax revenue.
All three of these systems should be kept separate and funded independently.
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JEleazarian
Trad climber
Fresno CA
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Apr 21, 2011 - 08:36am PT
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Roger,
That's the best way of presenting the issue I have yet to see. Thanks.
John
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mrtropy
Trad climber
Nor Cal
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Apr 21, 2011 - 09:03am PT
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One stat that I can unpack and understand is that the top 1% earn in the ball park of 20% of income and pay 40% of Fed Income Tax. \\
What? No one really believes this do they?
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Roger Breedlove
climber
Cleveland Heights, Ohio
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Apr 21, 2011 - 12:00pm PT
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The exact numbers for 2008, as published by the IRS in October 2010, for the top 1% of taxpayers are:
Total number of returns with positive Adjusted Gross Income: 1,300,606
Income spilt point $380,354
Total AIG $1,685,472,000,000 ($1.6 trillion)
Total income taxes paid on all sources $393,149,000,000
Share of total AGI 20.00%
Share of income taxes 38.02%
Average tax rate 23.27%
Top 50% of all positive returns in 2008:
Total number of returns with positive Adjusted Gross Income: 69.980.290
Income split point $33,048
Total AIG $7,352,111,000,000 ($7.4 trillion)
Total income taxes paid on all sources $1,003,639,000,000
Share of total AGI 87.25%
Share of income taxes 97.30%
Average tax rate 13.65%
Bottom 50% of all positive returns in 2008:
Total number of returns with positive Adjusted Gross Income: 69.980.290
Income split point $0 to $33,048
Total AIG $1,074,514,000,000 ($7.4 trillion)
Total income taxes paid on all sources $27,873,000,000
Share of total AGI 12.75%
Share of income taxes 2.70%
Average tax rate 2.59%
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JLB
Trad climber
Smiths, AL
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Apr 21, 2011 - 12:16pm PT
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Income and other taxes, and any statistics related, are far too complicated a topic to discuss with any level of reliability. While the author of the article obviously has a great deal of knowledge on the subject, there is indeed a slant.
Examples: The point about in 2006 Bush taxing children's earned income at their parents' rate - completely wrong. The "kiddie tax" was around way before 2006 and it taxes UNEARNED income - interest, dividends, capital gains, passive income - at the parents' rate. It is and was meant to capture income from assets moved from parents to children to avoid the tax at higher rates. The CHANGE in the kiddie tax in 2006 (I believe that was the right year but I am not sure, someone else can verify if they want) was a fairly minor one - something like moving the affected age from "under 14" to "under 18". Again, going off memory there - someone else can verify if you want.
Referring to depreciation as "paper losses" is tremendously misleading even though the actual allowable deduction for the year may not be a cash outflow in the CURRENT YEAR. However, it is absolutley ridiculous to think that someone who either spent cash or incurred debt (and is subsequently paying off that debt with cash outflow) on assets (equipment, buildings, computers, etc) to employ in an income-producing objective should not be allowed to write off those assets over time. Tax law prescribes the period of time that must be used to depreciate, it is in no way arbitrary and just a "paper loss." Sometimes, that allowable depreciation is deducted against income over 39 years (commercial real estate). That asset was more than likely paid for with cash way before 39 years.
Companies receive huge "REfunds" because of the same reason you receive a refund - you had money withheld from wages or paid in estimates of some kind. at some point, they have previously paid in a huge amounts of prepayments, they are not awarded a refund arbitrarily as the article implies.
The point made about it not being fair to receive a step-up in basis on inheritance of low basis stock (or other assets with any value) leaves off the fact that it is because those assets have been subjected to the estate tax - which is now 45% (and was recently at 55%). So, you work your career trying to earn a living and accumulate something for your family, paying taxes along the way only to have your estate pay almost half of it's value in taxes. That's total fair value when you die, not your cost. now, the exclusion for the estate tax was just raised in the last change to $5mm with portability - meaning both spouses get the $5mm exclusion. doesn't take long for a married couple to work normal middle class careers, who own a home, and have a life insurance policy to accumulate $5mm.
What I've learned over the years is that taxes, like most other things in life, are very personal - the taxes themselves and your own opinion on them. I've seen people making $1,000,000 a year contribute $100 to charities, while people making $90,000 a year contribute $15,000 a year to charities. these type situations affect all the statistics and tax rates used tremendously. A lot of the information from the IRS data is from filing taxpayers, not counting the LARGE part of the population who do not file returns. So when you see that the top 1% incomes paying 40% of the individual income taxes and the rest of the top %10 paying another roughly 30%, that is the top 10% of filers, not population. So that is less than 10% of the population paying 70%+ of the indivdual income taxes. How do you make anything "fair" when a lot of people participating in the benefits of living in the US do not participate in the cost side? What effect do the folks who cheat on their taxes have on these statistics? You can look up what the IRS estimates to be the annual "tax gap." Have you ever done work and got paid "under the table" but not reported that income on your tax return? if so, you've affected the tax statistics. I've seen people who makes millions cheat and I've seen people who make very little cheat - claiming too many kids on their return to get a huge Earned income credit - a refundable credit even though nothing was paid in - it is one of the most abused tax laws in existence, and it is not abused by the rich.
It is easy to point the fingers at the rich. But what is not easy is taking the risk of starting a business and putting your name on the note at the bank with a personal guarantee on the loan where if the business fails you could lose your home, kids' college fund, your retirement, everything. You take the risk of employing people, giving them the opportunity to earn a living, all while taking on the risk of having that person work for you - being responsible for that person's actions while in your employment (in a business sense). You pay your taxes, diligent to file and pay properly abiding by the laws. even though your take home after tax may be more than your employees, you stand at risk to lose everything. Based on all the individual factors, your tax rate is probably higher than your employees - federal and state income, estate, sales, property, ad valorem, payroll (in proportion to what you put in and what you are one day allowed to take out) - all while being at risk to lose everything with one downturn in the economy, increased competition, change in a relevant law or policy, you name it. How do you decide what is fair?
It is hard to draw anything concrete from "FACTS" like the ones in the article because there are so many other factors affecting the real economics. Just like the article, you end up arguing for your opinion which was already decided before you touched any statistics.
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froodish
Social climber
Portland, Oregon
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Apr 21, 2011 - 12:43pm PT
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Here is a simple test to determine if you really believe they should be comingled. What would you think if Ryan or Obama (this is non-partisan) were to propose that social security benefits were reduced across the board to pay for shortfall in discretionary federal spending, say funding tax cuts or paying for the wars?
Ahh, but that's exactly what the Ryan "plan" (and I use the word loosely given all the magic asterisks it contains) does WRT Medicare. Even better, it doesn't use the proposed Medicare cuts for paying down the debt, but rather to give further tax cuts to corporations and the top earners.
(Since 1996, the Medicare Trust Funds have been "on the books" and part of the unified budget, unlike Social Security.)
http://www.ssa.gov/history/BudgetTreatment.html
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JEleazarian
Trad climber
Fresno CA
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Apr 21, 2011 - 02:04pm PT
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Roger and JLB,
Your posts are superb. Unfortunately, most people don't care about those facts. They care about not having to pay more, or receive fewer service, themselves. As long as everyone's solution is that somene else, but not them, should shoulder the sacrifice, we face financial ruin. For that reason, I would add one other question to anyone's solution for the problem: What are you giving up under this proposal? If the answer is "nothing," it's not a serious proposal.
John
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Roger Breedlove
climber
Cleveland Heights, Ohio
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Apr 21, 2011 - 02:24pm PT
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froodish, can you point to some evidence that Ryan's plan is using Medicare payroll taxes to fund other government spending? I am skeptical.
I think that only about half of the current expenditures for Medicare come from payroll taxes for Medicare. The rest comes from general revenue. (The original plan was that almost all of Medicare benefit would be paid by payroll taxes, but this hasn’t worked.) If your comment means to say that the future percentage of Medicare benefits that are funded by general revenue will be reduced from what they will become with the current funding, then your comment is probably true. But that does not mean that Medicare payroll taxes will be diverted to non-medical purposes.
All politicians freely admit that the current system is untenable. There is simply not enough money to pay for Medicare benefits for the Baby Boomers. The Ryan plan proposes that the system be changed to provide vouchers of some sort (about $8,000 per year) so that seniors can buy their own medical insurance. Most people (80%) object to this. An estimate I have read asserts that the Ryan plan would pay for only about 37% of the seniors' medical expenses in future years, whereas the current, but untenable, Medicare benefits would pay about 75%. Obviously, Ryan’s plan will limit the Federal government’s expenditures, but I have never seen any mention that it will somehow be so cheap as to allow Medicare payroll taxes to be used for non-medical expenditure. This would have to be true for your statement to make any sense.
The reason that Ryan's plan makes some sense is because no one is willing to raise the Medicare payroll taxes to the level that is needed to support the current system. There are two great political fictions being touted: raising the taxes on the rich (Obama) will pay for this (it isn't enough) and vouchers will allow the free market (Ryan) to reduce health costs (there is no evidence to support this).
Many analysis are pointing out that while Ryan's plan does nothing to control medical expenses, it does create way for means testing so that well off seniors can have their benefits reduced. On its merits, this is a valid, if widely despised, plan. Perversely, the Ryan plan is a way to provide health care to the less well off by reducing the benefits of those who can afford to pay their own way. If Medicare is seen a social welfare program, such as Medicaid, this is fair enough, but if it is seen as an insurance program, then it is not fair.
(Here is a thought experiment: you, dear reader, purchase car insurance with medical and uninsured motorist coverage. You pay your premiums every year for 10 years. You have a serious accident with an uninsured motorist, who is clearly at fault. You file your claims and the insurance company demands to see your tax return and bank statements. Your claim is denied because your income and assets exceed a threshold set by comlicated rules in a little read clause in your insurance contract. However, per your contract, the uninsured motorist is fully covered by your insurance company, fully funded by your premiums.)
The biggest problem with the Ryan plan and Obama's approach is that they both avoid the main issue: There are no sensible ideas that have political traction to reduce medical costs. 74% of medical costs are expended in the last year of the patient’s life--(Quickie quiz: how much saving could be gained by allowing everyone to only live 6 months of the last year of their life? I would chose the second half for my portion to live!) The only ways being discussed to match Medicare benfits with premiums is to reduce the federal government's obligation (Ryan's) or to increase income taxes (Obama) on the rich when mathematically collecting 100% of this group’s income will not fund the problem.
John, you may be right, but I am hoping that there are readers who are silently mulling over the issues and trying to sort the posturing from the sincere.
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CrackAddict
Trad climber
Joshua Tree
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Apr 21, 2011 - 03:01pm PT
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Referring to previous posts, there is some disagreement over corporate tax rates vs. what is actually paid. While it is true that we have the (soon to be) highest rate in the World, it is also true that there are libraries full of loopholes so that politically connected corporations or those with good lawyers pay little in taxes.
This is typical of what politicians do though - they impose restrictive laws and taxes and then take money in exchange for exemptions. In a perfect World they would be in jail for it, but until then what we need to do is clean up and simplify the tax code. Make it much flatter and without all the exemptions. I just read an article (I can't remember where) that roughly 1/4 of what the Government taxes is essentially lost to lawyers, accountants, and tax software makers. That is not even counting the loss of business to countries with simpler tax laws. If we cleaned up the tax code, I bet we could lower taxes and still bring in more revenue.
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CrackAddict
Trad climber
Joshua Tree
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Apr 21, 2011 - 03:58pm PT
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I think the real reason the middle class has lost ground on the upper class the last few decades is inflation. Looking at the previously posted chart, the gains the wealthy have made correlate pretty strongly with the real inflation rate (not the CPI). The middle and lower classes have had their purchasing power eroded. The reason for this is simple: The wealthy have most of their money in equities, real estate, etc., things that rise with inflation, whereas the lower and middle classes spend most of the money they make.
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