Look closer. Think harder. Choose the sound argument over the clever one.

Monday, October 10, 2005

Tax that yacht or not?

Scott left this comment on the previous post. This is worthy of its own discussion.

There's really no question that America is the wealthiest and most well-off country (financially and materially speaking) in the world, is there?

My boss' boss and I recently had a good political discussion on something very similar. He's a proponant of a static tax rate for all incomes - something that will never happen, admittedly. As people make more money in this model, they pay more tax, but it's the same percent of their income as someone making far less.

His argument is basically that because he worked hard to where he got, he shouldn't have to pay a higher percentage of tax than others. He is referring to the "behavioral poverty" people.

I think he makes a good point about people abusing the system and playing on people's sympathy rather than changing their own lifestyles, but I'm not sure I agree with his static tax model. In a way, people on the low end of the economic spectrum are really just using "loopholes", if you will in the same way as people on the upper end of the spectrum are using them to avoid paying taxes. There are abusers on both ends in today's model. I believe the loopholes need to be eliminated. There is no justification whatsoever for tax breaks for the wealthy. None. At a minimum, they should pay the same rate of tax (as a percentage) as I do.

In addition, I'll go so far as to say that the obscenely rich (our illustrious Veep, for example, or Bill Gates) should also pay a higher percentage than I do. I say this because we are living in a democratic society in which "the people" have determined this to be so. If I'm given the choice (which again, in our democracy we all, essentially, are given when we vote) between Bill Gates getting another 5 billion dollar yacht or funding the schools most in need of funding (insert your own political cause here), I'm going to go with the schools. Now, Bill may tell me it's not my right to take his yacht away from him, but I'll sleep better at night knowing that I've done so in order to improve some kids' education.

Of course, the obscenely rich being in a higher tax bracket doesn't do much when they use loopholes to get out of paying the taxes that they should. Which brings me back to my "close the loopholes" point.

Essentially, yes, there are people that abuse the system at the low end of the economic spectrum. They are not, however, the worst abusers. I'd rather see more effort put into getting the upper end of the spectrum to pay the taxes they should pay. That would solve many of this countries economic problems.

Dan Trabue adds: "To them to much has been given, much will be expected." (Luke 12:48)

I think I'm for the flat (same percentage) tax. I think it would close loop-holes for the high-end people. (Closing loop-holes on low end would be good too.) I like the thought of it rewarding hard work.

Regarding the will of the people: I respect the will of the people. I have a certain amount of faith in the basic goodness and decency of the American people. But I'm all for influencing them, too (for all our good). The will of the people has made the lotto and McDonald's what they are today.

What about taxing the "obscenely" rich at a higher rate? First, full discloure: we're not obscenely rich. (Are we, hon?) And I don't operate from sympathy for these folks. My concern is what effect it has on all of us.

So somebody like Bill Gates goes after his buku-million dollar yacht. In the process, he employs thousands of folks for several years at decent salaries. They each pay their tax, and spend their income at the grocery store, Home Depot, etc., each of which employs others, who pay their tax, etc. We raise Bill's taxes high enough, and he decides not to bother. Then all these cascading employments fall off accordingly. (A valid assumption?)

Once we add it all up, would everyone's tax have made a bigger contribution than the increase on Bill's alone? How do we measure all the benefits of these jobs and the wealth they generate (including yacht makers themselves)?

This is where I consider Dan's remark. Much has been given, and much has been given back.


(Please keep in mind that each commenter's opinions are only his/her own.)

As someone who is a bit middle class in income, I expect - nay, I WANT to pay more than those in direr straits than I am.

Think of it this way: We've got a little village and I make $10,000 and another makes $2000 and we want to build a road (for bicycles, of course). It will cost $4000. I do not want the person who makes $2000 to pay the same amount as me - even though we're using it equally. I'd rather pay more.

Seems only reasonable and just to me. And, just to add, the quote: "From everyone to whom much has been given, much will be required; and from the one to whom much has been entrusted, even more will be demanded..." is from Jesus, not Marx (as is sometimes thought).

For what it's worth.

I agree with Dan's comment. I consider myself to be in a similar position in economic status. I WANT to pay more taxes so that we can solve some of the problems in our society - like pay teachers more, for example - or fix all these horrible roads we have in my town.

And, sorry, but I don't think your Gates argument is a valid one. Bill's already got like 3 yachts. Do you really think that, when he discovers that he can't have that 4th one because the money he'd need to buy it would put him in the next tax bracket - so he just says "screw it" and lays everyone off? I don't think so...

In addition, I really think the loopholes is a seperate issue from the flat tax idea. The abusers of the tax code are the biggest problem. Fix that and then see where we are. If, after we fix that, we want to entertain the thought of a flat tax, I'm not sure that's such a bad idea. Flat tax, though, is meaningless as long as the abusers have their loopholes.

And, again, yes there are abusers on both ends of the spectrum, but the ones that cause the economic hardships of our nation are on the upper end of said spectrum. They should be addressed first. That takes priority, in my opinion.

I commend both your attitudes.

But with a flat percentage-wise tax, you would pay more, scaled to your income. In Dan's example, five times more.

BTW, Dan, I added your Scripture reference to the original post.

Though I use Bill Gates' name, I meant the archetypical Bill Gates's of the world--those creating and growing companies. As Bill has his neo-monopoly, he's admittedly not a great example.

Aren't the tax loop-holes allowed by the sheer complexity of the tax code? A radical simplification alone would close many, it seems.

You said:
"But with a flat percentage-wise tax, you would pay more, scaled to your income."


However, I'd still be in favor of a progressive tax rate where the wealthier are paying a larger percentage. It could be simplified and streamlined and still progressive (ie, if you make less than $20,000, you pay 1%, 20 - 100,000 5%, etc, etc.), no?

Frankly, my gut tells me that no one needs more than $100,000/year and if I were dicator, that'd be the salary cap. Good thing I'm not a dictator, huh?

You boys will be happy to know that in 2003, people who grossed more than $100,000 a year paid more than twice the percentage of their income as those in the $25-$100K bracket and more than six times the percentage as those who made below $25K.

Did you know that the top 13% of income earners are paying nearly 2/3 of all income tax?

You're making the "wealthy" out to be evil...and some are. But, come one folks, these are the people that are driving the economy of our little village, and giving most of us jobs. They are people who have worked hard, taken risks, busted their butt in school to get to where they are. Heck, even a few are faithful stewards of their money, their families and all else entrusted to them.

OMG! There are GOOD rich people?! When did this happen?!

But seriously, I would be willing to wager that the 'good stewards' to which you refer are in the minority. There are also many, many people who simply inherit their money and haven't done an honest day's work in the entirety of their lives.

And I seriously doubt that those in the upper echelon live their day-to-day thinking to themselves "Sure, I'm filthy rich, but my being filthy rich contributes to the little villages, so it's O.K. to be filthy rich".

I also do not feel that they are "driving our economy" so much as they are "feeding the status quo". For many of the wealthy, they got to where they are BECAUSE of our economic conditions. They don't want those conditions to change, so they empower policies, etc. to maintain the status quo.

It's just like any large corporation. Do you really think that ANYONE is worth $800K / year? ANYONE? I don't think so. So, you land the cushy CEO job and get paid mad money - are you going to try and promote change? Heck no! You're going to try and prolong your reign so you can bring down $800K / year for a couple of more years and then retire! I might be going off onto a little bit of a tangent here, but this model also applies to our economy as a whole - and those that drive it.

Jeez, Scott, one too many cups of coffee this morning? But, your tangent has a few topics I like to rant about, too.

You say...

I also do not feel that they are "driving our economy" so much as they are "feeding the status quo". For many of the wealthy, they got to where they are BECAUSE of our economic conditions. They don't want those conditions to change, so they empower policies, etc. to maintain the status quo.

Can you say more about this? What do think are significant economic drivers? Other than business, I'd maybe buy consumer debt...it has done a stellar job at inflating our economy, especially in the 90's.

I only one person who inherited a small fortune when both parents died. He lived off the money for a while, and now he's sadly back to work. In the book "Millionaire Next Door" I remember reading that most people tend to squander money they didn't earn (inheritance, lottery win, really any money that's been handed to you). This seems to be true. These folks definitely aren't economic movers and shakers or good stewards for that matter. Given that, I'd be surprised if they are a statistically significant percent of wealthy in Americans...which would makes them irrelevent to the original post...but a fun rant nonetheless.

FAIR TAX plan is the way to go ...

It means we do away with all INCOME taxes for Business and citizens.

We replace it with a consumption tax whenever you purchase products you pay a 30% tax .

The poverty level gets tax rebated similar to GST rebates .

This is an effective way to have the
rich pay more taxes because they purchase more expensive products therefore paying more taxes.

The BIZ sector has no payroll or corporate taxes although any items purchased for business are taxed like all other products.

This will make our economy explode and create more jobs causing more consumers paying taxes.

Just think the benifit of smaller government with no IRS , Revenue Canada agencies...

This will also promote savings as people who choose that option save on paying taxes...

It is time for a party with vision to promote this logical far reaching idea.

Scott: "...I seriously doubt that those in the upper echelon live their day-to-day thinking to themselves..."

It's more about what each of us does, conscious or not: Adam Smith's "invisible hand." Each pursues his own best interest, and we all find ourselves farther along than we ever could have planned. (I do think some guidance is warranted.)

Most of the world would give their eye teeth for our status quo.

I personally don't think CEO's are worth what they're paid. But I have to stand on my head to come up with a theory to explain it. The simplest explanation is supply and demand. Companies have every reason not to pay anyone more than they think they're worth, from the unskilled worker to the CEO.

Anon's suggestion of a flat sales tax would encourage savings (a good thing). 30% seems steep, though, and it punishes people for having kids, etc.

I gotta say, Dan, that your $100K limit would destroy our economy in just the way my original post speculates.

There's no such thing as too much coffee, Kirsten... ;)

I thought my corporate analogy was pretty good, but here's another simple example. Exploitation. Exploitation of others simply because you're in a position to do so. Heck, here's a local example. NIPSCO deposits.

Does that help?

If NIPSCO deposits are the worst exploitation around, I think we're doing pretty well. (And they're complaining, even though NIPSCO is reducing deposits--because they're not reducing them enough. If they agreed to 1 month, would it be exploitation if our what's-left-of-the-news crew decided it should be zero? Even liberal Citizen's Action Coalition of IN isn't making noise about this. And that's not to mention NIPSCO's own initiatives.) Sheesh.

True. Coffee good.

I'm with Scruty. There has to be a better example of local exploitation. With $250+ monthly heating bills coming down the pike, a one time $80 increase in a heating deposit isn't the biggest concern, especially since they'll earn interest on that deposit.

Still wondering what drives the ecomony...

Okay, you don't like my NIPSCO example. That's fine. In actuality, I think South Bend is pretty progressive in terms of trying to revitalize our community.

Sorry Kirsten, I thought your question was in regards to how big corporations maintain the status quo. Let me answer your question on what I believe drives our economy.

Perhaps, Kirsten, you think that if we brought "big business" into the community, things would improve. There are other schools of thought on the matter. I tend to agree with this point of view - that small businesses drive our economy rather than big ones. So, that should answer your question of what drives the economy - small business. (not the big dogs that you guys are defending)

Here are some FAQs regarding small business for you.

Here's something else for you to consider. This is the real alternative to Bill Gates and his profiteering gluttons.

As far as NIPSCO being the stand-up sort of company that you feel it is, Jim. Well, I work with a guy that used to work for NIPSCO, so maybe I have a little different perspective.

But then, you might also suggest that someone that knocks over only one 7-11 is really not all that bad? After all, he could be knocking over 12, right? So we've got it pretty good... Oh, and nice try with the whole shifting the blame of the NIPSCO deposits to the "liberal media". Not buying it.

This is one liberal that thinks it'd be great if they reduced the deposit to only one month. The very fact that people have had to go to the lengths they have thus far in order to get them to do so, however, is disgusting. And, do you think they'll actually accept just one month? As far as their "own initiatives" are concerned - sure, I'll give you $9 today, if you agree to pay me $10 tomorrow. That's hardly as noble as NIPSCO has convinced you that it is. In fact, I see it as comparable to casinos giving you free drinks so that you'll stay and continue to give them more money.

The programs set up to pay for people's gas deposits because they can't afford it shouldn't even have to exist. NIPSCO isn't just exploiting the poor. They're exploiting these companies and the good will of the taxpayers and people contributing to these companies' programs.

Oh, and how come Jim cannot cally you "wife-of-Scrutinator" or whatever, but you can call him "Scruty"? ;)

Oh, I wasn't separating out big business from small business, though I tend to think that there's corruption in both (a small business example might be the building industy).

Did I call Jim, Scruty, in the blog? Ooops. I usually just call him that in private...

Regarding NIPSCO, I'm mostly just letting the defendant speak for itself. I get suspicious when the what's-left-of-the-news crew says, "Exploitation. Case closed." (I know that's not exactly what they said.)

Thinking out loud about NIPSCO... energy is something you can't exactly re-possess if someone refuses to pay--they've already spent it. So what do you do? What does your employer do with people who won't pay them? I did read the proposed rule change, and it seemed pretty reasonable. They were bending over backwards: special provisions for winter months, allowing pretty small partial payments. Lots of effort spent on those who "fail to establish creditworthiness." Which, statistically, means most likely not to pay.

Maybe someone should start an energy cooperative and give it away to anyone they see fit. That would make all those rules just go away. (Of course, if you have to crush us all under socialism's dire poverty to make it work, forget it.)

Acting like big business is bad because it's big makes me suspicious, too. Say you start a small business and you're successful. Does it suddenly turn evil at the 101st employee hired? The 1,001st?

I agree that small business plays a big role. A lot of small businesses make their living selling to big businesses, too, and there's no shame in that.

I'm proud to already be on the record for commending open-source software. I'm not sure everything should be open-source, but open-source is good. I think it works because it's relatively small-scale and strictly voluntary.

10% flat tax. Simple. Enforceable. Fair. . equitable. Closes every possible legal loopole.


A consumption tax, i.e. a sales tax, would both eliminate loopholes and have people pay "their fair share".

If people want to buy their gazillion dollar boat or plane or car, let them. Those people who will never buy a vehicle like that won't have to pay a tax on it. Make the tax 20% and see what happens. If states and local governments want to tack their own sales taxes on, let 'em.

I would go for a sales tax rather than a flat-rate income tax for one reason: Not taxing income would allow people to put their money directly into an IRA or mutual fund or other investment without being raped by taxes. And investment, more than anything else, drives the economy. Also, the people who consume the most would pay the most taxes. Fair and fair alike.

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