Is Our Tax System Helping Us Create Wealth? (David Cay Johnston, Commentary, Tax Analysts)

http://economistsview.typepad.com/economistsview/2009/12/is-our-tax-system-helping-us-create-wealth.html

Excerpts:

During the 45 years starting in 1961, payroll taxes have gone from a minor levy to almost a sixth of wages for the bottom 90 percent of American households. This $760 in income tax savings that the average taxpayer enjoyed in 2006 was taken back, and more, by the increased tax rates for Social Security and Medicare. Those rates rose from 3 percent withheld from pay in 1961 to 7.65 percent in 2006. Not all income is from wages, of course, but those higher payroll taxes wiped out the seeming reduction in the income tax and more. ...

And at the top? Now, that’s a different story. The average income for the top 400 taxpayers rose over the 45 years from $13.7 million to $263.3 million. That is 19.3 times more. The income tax bill went up too, but only 7.8 times as much because tax rates plunged. Income tax rates at the top fell 60 percent, three times the percentage rate drop for the vast majority. And at the top, the savings were not offset by higher payroll taxes, which are insignificant to top taxpayers.

. . .

What is the social utility of creating a society whose rules generate a doubling of output per person but provide those at the top with 37 times the gain of the vast majority?

. . .

Is a ratio of gain of 37 to 1 from the top to the vast majority beneficial? Is it optimal? Does it provide the development, support, and initiative to maximize the nation’s gain? Are we to think that the gains of the top 398 or 400 taxpayers are proportionate to their economic contributions? Does anyone really think that heavily leveraged, offshore hedge fund investments are creating wealth, rather than just exploiting rules to concentrate wealth, while shifting risks to everyone else?

Under the overwhelmingly dominant economic theory of today, this is all good. Pareto argued that if no one was harmed, then all gain was good. Carried to an extreme, neoclassical economics would say that if the bottom 99.9999997 percent had the same income in 1961 and 2006, and all of the gain went to the one other person in America, that would be a good.

. . ,

nevermind that it's highly regressive in practice, it's just plain offensive.

for the filthy rich to sit there and tell us that their cash earning money by sitting in a bank should be taxed at 15% or 10% or even 0% while the sweat of the brow of the working class should be taxed at potentially 25%, 28%, 33%, or 35% is just plain odious.

all forms of income should be taxed equally, and if there is any differentiation to be made, labor should have the CHEAPEST rate.

a Marxist.





Tansy Gold, your friendly neighborhood Marxist socialist