Why I believe in a Progressive Income Tax: The rich use more resources

Take two folks, Mister Fat Cat and Mister Working Dude.

Mr FC is incredibly wealthy, and owns a big company, as well as a lot of stock in publicly traded companies. He has four homes, a yacht and several limos. He has a staff of 20.

Mr WD is middle class, blue collar. He has some stock, his 401K, a car and a motorcycle.

Mr FC should be taxed more simply because his income, his lifestyle, and all of the world around him depends on the government far more than he would like to admit:

- His company deals with a lot of imports and exports. For this reason, he needs the US Navy to protect his investments when crossing international waters. Pirates are just one thing he has to worry about - also take into account the tariffs on other products, and lack of tariffs that make his shipment of goods more profitable.

- His company also transports these goods on US Interstates, and to boot the method he uses (containerized cargo on semi trucks) does the most damage on US highways. Then add in the police and fire protection given in case his truck is hijacked or set fire to. Mr. WD just uses these highways locally to drive to and from work, and then sometimes to go on vacation.

- Some of the stock he owns deals with paper companies, which depend on federal lands for practically free logging. He uses these lands daily, sucking their resources dry where as Mr WD merely goes fishing here when he can.

- Although Mr WD's kids and Mr FC both use public schools, Mr FC still needs them more than Mr WD. Mr FC hires the best engineers and scientists for his companies, and these folks need a good education or Mr FC's R&D will suffer. Mr FC also doesn't want his warehouses broken into at night, and the more educated the people, the less likely they will turn to larceny.

- Mr FC doesn't leave his house much, but does a lot of his trading on the internet. The internet was designed, and in many cases still supported, by the Federal Government. Mr WD just uses the net for email and porn, whereas Mr FC depends on a wide network of financial institutions all connected so when he buys a stock at an expected price, he gets it at that price.

- Speaking of financial institutions, Mr FC had friends who lost money in the Bernie Madoff scandal, and as a result he is pushing his congressman for banking reform (let's just say this Fat Cat has a brain.) Hiring attorneys and prosecuting Madoff costs money, and was a pretty expensive endeavor.

I could go on, but I think you get the point...

I could go on, but I think you get the point...

:)

Good post..

You should add that the rich don't contribute to the economy proportionately either. If a man (or woman :) ) makes 75K per year, and another makes 5 mill per year, the fat cat does not buy "proportionately" more cars or groceries,etc. than worker dude. worker dude puts most of his money back into the economy in ways in which contribute to manufacturing, agriculture and small businesses. Further, almost 100% of Worker dude's purchases are subject to sales tax. While it could be argued that fat cat's investments help the economy, it isn't entirely true, as international investments, precious metals and many other types of investments do not contribute to the economy at all, but do contribute to fat cat's non-earned income. it does not trickle down.

last year the top 400 households in America paid income tax on only 7% of their income. the other 93% came from non-earned and therefore should be taxed at a higher rate.

Great post, BTW.

Great post.

:thumbsup:

international waters? His future computer (or car, or dishwasher) may be on that ship. Then it's put on a truck and shipped on the good US interstates to a store near him where he can pick it up or have it delivered. The police and fire protect him as well. He no doubt has paper in the house, drawings from his little girl and such, and his house may very well be built with some of that federally logged wood. Mr. FC hires well educated students (maybe Mr. WD's child), and the same internet he uses for porn and email is likely the same way he pays his bills and buys goods (that are shipped from oversees, and transported across federal highways while protected by fire and police).

I'm not saying Mr. FC doesn't use a lot of federal resources, but Mr. WD relies on them more than you seem to be implying. And of course, if Mr. WD works for Mr. FC, Mr. WD relies on these federal resource to make sure Mr. FC can continue to employ him.

Then WD will just buy another dishwasher

Mr FC is the one that stands to lose, and thus needs the Government more

The dishwashers bought by all of the "Mr. WD's" out there will costs more. If Mr. FC loses 1 out of every 2 dishwashers in transit, he will sell 1 dishwasher for the price of 2.

if such a thing existed. Mr. FC is able to break the backs of US companies and enrich himself by investing in foreign companies, precisely because we subsidize him to do so.

Both he and Mr. FC still rely on the same government resources (except international shipping) that he would have before... police, fire, highways, etc.

to build those computers domestically. I'm not saying Mr. FC and Mr. WD are equal in their benefit directly, but that Mr. FC and the aggregate of all the Mr. WD's out there who use his companies services are not as far off as (IMHO) is being portrayed.

He has set up the subsidies, the "free trade," and so on precisely so he doesn't have to hire Mr. WD. He enjoys the benefits without supporting the people who provide them.

His US factory uses foreign suppliers with foreigners driving the trucks? And Mr. WD doesn't actually end up with the computer that he paid for at the price he was willing to pay?

he has used our government to destroy his U.S. competition, so he can exploit cheap labor overseas.

and we could get most of the raw materials here, too.

the person who needs to produce them overseas is mr. big -- because the profit picture is better on that cheap labor -- in the production of goods, in the production of raw materials.

as a result, products are cheaper for the consumer, but the productions provides far fewer jobs. In the end, even if Mr. Big produced all of his products domestically, isn't the argument essentially the same? Does Mr. Big use a larger percentage of public resources than "Average Joe"? Sure. Does "Average Joe" also benefit in some ways from Mr. Big's use of public resources? Yes.

Unless an individual is producing all their stuff at home with materials in their own yard, they're benefiting from "corporate" use of public resources.

From the OP, it was comparing Mr. Big's personal and corporate use of public resources to Average Joe's personal only (non-consumer) use of public resources. Corporations, for all their faults, do provide some public benefit in their products. If they were only providing things people didn't want or need, they'd go out of business. Do they overcharge and outsource, which in turn hurts their own consumers, absolutely, but to suggest that the consumer gets no benefit from corporate use of public resources is not accurate.

however, price history suggests that those "low low prices" apply to only some goods. i.e. while the price of clothing has dropped, the price of drugs hasn't.

even though lots of vitamins & pharma components are now largely produced in china.

and there's also the question -- benefit compared to *what*?

i suggest people would quite happily pay higher prices on clothing & electronics in exchange for more & better jobs, lower crime rates, less mental illness & homelessness, universal health care, more well-adjusted children, etc.

for running his business, but didn't list any benefits to Mr. WD as a consumer of Mr. FC's business. There was, as far as I could tell, NO acknowledgment that MR. WD benefits in any way from Mr. FC's business. Calling that a strawman doesn't make it one.

As far as whether it's more of a benefit or detriment to Mr. WD, that's another question, but to suggest that Mr. WD doesn't benefit from Mr. FC's use of public resources is not accurate.

Strawmen are burned and built exactly for that purpose. While I'm not sure if the previous poster is building or burning his strawman, I would agree that an effigy made of dried grass stalks is involved here. I saw no implication of an absence of benefit the rich may or may not provide and I'm certainly not willing to accept they are entitled to any credit or advantage even if they did. The rich are primarily motivated by a desire to benefit themselves, not by a desire to better the lives of others. This is true of even the most benevolent among them. I see no reason to further reward them because they may employ others or provide necessary goods and services.

I'm not really sure why you provided them.

For the sake of pushing the discussion further-

Mr Fat Cat creates many more job opportunities, more wealth, expands the economy.

-his company deals with imports/exports. Lots of jobs and growth there.
-his company ships commerce. Lots of jobs there.
-his company uses paper but so does Mr. WD every day he goes to McD's to buy food wrapped in paper thrown away 1 minute after purchase. Mr WD also enjoys porn magazines, for the articles of course. He also buys lottery tickes printed on paper.
-Mr FC can hire the best engineers and mostly they graduated from private schools and then went for degrees at Harvard & Yale. Or Mr FC hires the best from overseas.
-Actually, Mr. FC is hardly ever at any of his multiple homes. He's golfing, traveling, sailing. All activities that create jobs on multiple levels.


So that's what Mr. Fat Cat and his bought and paid for Senators would say. With the Mediawhores backing them up.

What the Opening Poster fails to address is the third person called "Mr. Entrepreneur" and the wisdom of leveling the economic playing field for small business owners and innovators.

The burden of financing basic economic infrastructure should fall heaviest on those who PROFIT THE MOST from it's use.

I don't think your argument is valid. Even if they both pay the same rate, Mr FC will pay a larger amount. Assume FC makes $1,000,000/year and WD makes $10,000/year and they are both taxed at 20%. FC will pay $200,000 and WD pays $2,000. FC is paying a lot more even though the rate is not progressive.

So even if the OP's contention were true (that Mr. FC uses more governmental services) he certainly doesn't use them at a level proportional to the higher amount of taxes he contributes to the system.

How much does it cost for Mr FC to guard his 20 warehouses, 10 plants and 10 stores?

How much does it cost for Mr FC to protect his employees on their way to work?

How much does it cost for Mr FC to have good highways that he can transport his goods?

How much does it cost for Mr FC to have a licensing system for his drivers to follow, so that any idiot with two hands and a foot doesn't steer a truck of his goods over a cliff?

How much does it cost for Mr FC to have a local source of educated talent?

How much does it cost for Mr FC to have safe airlines to fly his salesmen across the country on?

I think 1000x more services is a conservative estimate...

I just happen to work in the creative economy. I have no employees. I have no fleet of cars or warehouses. You seem to forget that not every rich person in this country is as disgusting as you make them out to be.

If they didn't insure your bank deposits?
If they didn't enforce regulations on Wall Street to make sure your stock was worth something?

Yada yada yada.

Justification for a progressive tax system can also come from looking at just HOW MUCH Mr. FC vs. Mr. WD stand to lose without the power of government.

We could go back and forth on who gets the most out of government. The fact is, we all get something back from government. So we should all contribute. And yes, I believe in progressive taxation.

But for you to say that the poor get little back from the social safety net, and the rich get everything, is ludicrous.

In countries without stable governments, it's the poor who suffer most. Not the rich. Or do you think that it's a poor man's paradise in Haiti? Don't tell me that stable governments are only good for the rich.

Then why are you arguing with me?

COMPARED to what Mr. FC gets in terms of protection of his assets (i.e., what does he stand to lose?), Mr. WD gets very little.

If government is primarily to benefit the rich, then we should all be against it, right? Isn't that the Tea Party philosophy, to take down government?

Coming to the discussion a little late

But I'm sure you & he will have a fine time without me.

Can you say you are part of that 2% that control 98% of the wealth?

welfare programs are not a big part of the general budget. medicaid is the only one that is even substantial.

He has fleets of accountants and lawyers to avoid paying the theoretical rate - full price is for the little people. And he doesn't have to pay significant payroll taxes, nor do sales taxes on his food amount to much, unlike Mr. WD's situation. Proportional to his income, Mr. WD pays far more for basic survival and taxes than Mr. FC does. Mr. FC invests the excess and uses it to increase his hoard, thus becoming ever more wealthy and powerful compared to Mr. WD.

I have a good accountant, a lawyer, and plenty of financial advice. And I pay the maximum federal rate. I don't know where you get off thinking that there are no honest rich people who actually pay what they're supposed to.

You just have the benefit of professionals who find you a lot more deductions. In large part this is possible because the deductions were written by and for rich people. Same thing with payroll taxes. They were written to apply mainly to the bottom and middle of the economic scale. It's no mystery why that is. Folks at the top have the wealth and power to ensure it happens that way.

Which just goes to show you that my deductions (such as they are) are worth squat. For all that amazing power you ascribe to me, I'm in the same boat as everyone else. Like you, I pay taxes. I don't have the magical powers to make me immune, nor should I.

http://coyoteprime-runningcauseicantfly.blogspot.com/2010/04/23-of-us-corporations-pay-no-income-tax.html

NOT ALL INCOME IS THE SAME

The typical US taxpayer earns most of his income from salary, wages, and tips. It's what the IRS calls "earned income" - the income you get from actually having a job and doing the stuff that job requires, or earning it the old fashioned way. This is how most middle class, and even upper middle class, families earn their income. It's also the highest taxed form of income. I'll give a specific example at the end of this post, but for now just trust me that it's true.

The typical "rich" person, on the other hand, receives mostly "unearned income". This is basically any income that you don't have to work for: interest, capital gains, dividends, rent paid on real estate, etc. I don't do anything for the interest my savings account earns - I get money just for having the money sitting there, hence it is "unearned." However, all of these different types of income are taxed very differently.

Interest is taxed basically the same as earned income. It kind of stinks for the average saver, because your typical bank account interest rate is fairly low anyway, and it gets taxed the same as normal income.

Capital Gains and Dividends, on the other hand, get classified entirely separately on your tax return, and get taxed at entirely different - and much lower - rates than your normal income. (Again, details to follow in a specific example). There are also a number of ways in which you can make a *lot* of money in capital gains without paying any taxes at all.

Best of all (from a tax perspective) is real estate. Theoretically, it's taxed as capital gains. But you can make a lot of profit on real estate and pay almost no taxes at all, if you're smart about what you're doing.

Furthermore, corporations themselves are taxed in a totally different way than individuals, making it possible for business owners to give themselves all kinds of incredible perks tax free (or nearly so).

http://philosophers-stone.typepad.com/my_weblog/2006/11/how_the_rich_do.html

I thought we were talking about people.

I think most people would consider that rich.

Upper Middle Class, yes

Rich, no...

To be rich you have to belong to that 2% that control 98% of the wealth

I was just answering the question of "what is rich."

And those who earn over a million bucks a year are probably in that top 2% in the country.

In fact, according to Wikipedia, the top 1% earn only $350,000 and above.

http://en.wikipedia.org/wiki/Social_class_in_the_United_States

... is that it is based on a survey.

Having filed online via tech, I had not even looked at my bottom line figures until I got home this evening and curious from this conversation. So the first thing I did was load up my 1040 and look at my total income (line 37).

Turns out my total *income* is about 10% less than my salaries and wages!

Potentially, this could have been true. Were I spending more money on a business this past year than I earned on that investment, then line 37 should certainly have been less than line 7. And in past years, I *did* spend more than I earned on such expenses. But not this year. On a purely cash basis, my total income, after expenses, was roughly 6% more than line 7.

However, a lot of business deductions are figured into the income before you even get to the TAX AND CREDITS portion of the 1040.

If I use the total income figure from the 1040, then I ended up paying 22% in taxes. If I use a reality cash basis figure, I ended up paying 19% in taxes. If I use an absolute gross figure, it goes down even more since that would include pre-tax deductions from my salary (specifically 401(k) contributions and commuter costs).


"Was there a point to that?"

Yes, there was. Most monied people I have debated this insist on using that 1040 "total income" figure ignoring the fact that they have already amassed huge deductions to their cash-based total income by the time that figure has been calculated. And if they are being surveyed by the US Census Bureau, then it is likely they use that figure as well rather than the real income figure.


The real question is where the income is coming from. Those of us with salary and wages do not include payroll taxes in our figure. Those of you working independantly (which you appear to be) end up paying that as part of your income tax (the roughly 15% self-employment tax) and think of it has income tax which the rest of us do not. For the sake of "who pays a higher %", it is a wash as your SEP equals our payroll taxes.

But for a lot of the super wealthy ... the income is primarily in capital gains or dividends. I must admit, I have not been paying full attention lately. But last time I checked, capital gains were taxed at a flat 15% rate. And dividends were taxed at ZERO percent.


Now THAT was a fucking crime! If you inherited your wealth and did NOTHING with your inheritance but let it sit in bluechip stocks, then your entire multi-billion income tax was $0. Unfuckingbelievable that even FNC viewers supported GW in that one.

Don't know if that changed or not. But I do know that *unearned* income is still taxed at a lower rate than *earned* income. Heck, payroll (or self-employment) taxes alone are as high as the fucking capital gains income tax rate (and infinitely more than the dividend tax if it is still 0%).


In fact, I should probably delete this entire post and just post that last sentence. Working teabaggers love to complain that they are paying all the taxes with all their anger directed at poor people (working and non-working) while completely ignoring the uber-wealthy who pay less (%) in taxes while never working yet earn millions, or even billions.

Two words: Paris Hilton.

Three words: George W. Bush.

Because I can't imagine that $350,000 income is anywhere near the top 1% of income.

Ha, I wish my income WERE all from dividends and capital gains.

But I'm self-employed and will probably work till I drop because it's what I love to do.

...or if you do, they are not a good representatation of those who you define as rich.

The maximum tax rate for equity investments is 15%. Lots of high income people don't punch a time clock, they don't work for wages, they don't even pay 15.3% FICA on the first $106,800 of their earnings. The only way you would pay the "maximum federal rate" is if you work for wages or you have your own corporation and you aren't smart enough to seek tax advice from someone like Romney who will register your corporation in the Cayman islands. You can find guys that can do that for you in the yellow pages.

I know quite a few rich people as you would define the term. I know of none that make over $1 million in wage income. I don't know of any that come close. I find it hard to imagine a situation where some would be either unfortunate enough or stupid enough to put themselves into a situation where they would draw $1 million in wage income or otherwise be subject to the "maximum tax rate". It's far to easy to incorporate a business and legally avoid payroll taxes and corporate taxes, and that's just the legal side of tax avoidance.

The IRS estimates around $300 billion in uncollected taxes for each year. If you average that out for all the households in the US, it's over $2,500. Even if you assumed that every single average Joe or Jane out there is cheating like hell on their taxes, that still leaves a piss-pot load of money that high income people are bilking the gov. So while I certainly wouldn't say that all rich people are cheating on their taxes, it's reasonable to assume that more than a few are, and the truly ironic part is there is no real reason for them to do so since they can easily and legally avoid most of them. Since most state and othe taxes are also highly regressive, they aren't taking it in the shorts there either. There's quite a few people out there who truly think like Leona Helmsley.

The premise that electropop stated is absolutely correct. If you pay anywhere close to the "maximum rate", you are one of the little people, and you can't hope to compete with the wealth building potential of those who make north of $1 million while only paying 15% or less. The deck is very much stacked against many for the sake of a few.

The whole notion of fee-for-service taxation is not a conservative one. It's a progressive libertarian idea. It's based on the premise that there must be a "fair share" of taxation for the rich. If you base your argument on it, you have accepted that paradigm by default and the Limbaughs of this world will have already won because at some point you must define what the "fair share" of the rich is. Then it simply becomes a back and forth argument of trying to justify that amount. I choose not to accept that paradigm in the first place.

Our system of federal taxation has never been based on fee-for-service. Our system of federal taxation has always been that the more means you have, the more you will contribute to our society. That's the price they pay for living in a country that has allowed them to prosper so well. Even in the days before income tax, federal taxation was based on luxury goods and tariffs. The lower and middle classes were never expected to pay their "fair share".

IN response to the flat taxers out there...

More coal, more oil, more water, more of everything.

That's plenty enough reason for a steeply progressive income tax.

The family that doesn't own a car and lives in an small apartment in the city and doesn't buy much of anything shouldn't be paying taxes. Their footprint on the earth is small.

The guy who lives in a mansion in the desert, with acres of lawns, with rooms and rooms full of toys, central air conditioning, a private jet, big cars... That guy has a huge environmental impact and ought to be taxed hugely for that reason alone.

which he leaves untouched and undeveloped because he believes it should stay that way? What if he's like Rockefeller, who bought and donated to the federal government Teton National Park?

You have a pretty warped vision about ALL rich people.

:thumbsup:

Owning conservation land still requires property tax payments. They are lower taxes than if you developed it, true -- but it's still taxed. And no, you don't get to take anything off your taxes just because you own it and don't develop it.

Not what is...

I think I know what I'm talking about.

I get taxed on it -- a lower rate, of course, but still taxed. I would never develop it because I believe it should stay natural. And when I die, I plan to bequeath it to a conservation land trust. I certainly don't get an annual TAX CUT just because I don't develop it.

I think I'm getting a pretty good picture of how much you know about this subject.

I don't know as much as you about land use. In fact, only owning my own home I could say I know nowhere to the point you do. But I'm willing to learn.

A good tax plan should reward you for your conservation land. You and I agree on this. My problem is with people using money to make more money.

Again, I am no economist either.

That's why I a look to Ricardo's Socialism (he never claimed to be a Socialist BTW) for inspiration.

and I'm glad you're willing to listen.

I'm acquainted with quite a few of them. Some are my friends. Some are people I associate with through liberal politics. And as I mentioned before, I feel fortunate enough to count myself as one of them, thanks to opportunities that this country has given me. That said, I am a staunch Democrat and believe that some degree of socialism is necessary, which requires progressive taxation and a belief that we are all in this together. And there should be a safety net to catch the frailest among us.

About rich people:

-- Self-made millionaires are the stingiest people of all. Just try hitting them up for donations -- they'll balk, because most of them got where they are from pinching pennies and thrifty ways. They really are as described in "The Millionaire Next Door." As a group, they are insecure about their futures, feel that their financial world could collapse if they don't plan carefully, and they tend to be tightwads with their kids. They want their kids to know the value of a dollar. The really rich ones -- think Rockefeller level -- tend to underdress in jeans, drive trucks, and look like bums. They're uneasy being thought of as rich, and prefer to walk around "in disguise" as Joe Sixpack. Some of these people are breathtakingly rich, but you'd never know it.

(btw, people who drive around in fancy cars and give their kids fancy duds? Many of them are living on credit cards. They really can't afford that Rolex, but think they deserve to. The ones who LOOK rich are often up to their eyeballs in debt.)

-- Those who inherited their money, the trust-funders (and we have quite a few of them in Maine) all seem to suffer from immense guilt about their good fortune. They're embarrassed by their money. They don't want people to know they have it, because they think people just want to be friends because they're rich. They're skittish and hard to know -- unless they know you have money, too. In which case they can relax. Almost all of them are Democrats and liberals. Yes, they have money but they don't flaunt it. At least, not in New England.

Now, these observations don't apply to rich people in NYC and California, and I don't know about them. I can just tell you about northern New England rich folks. They may live in comfortable homes and own lots of land, but they sure don't drive fancy cars or dress in fancy clothes. They don't have servants. Some of them do have boats, but so do a lot of people around here.

My point is, you can't judge them as one uniform group. Just as you can't judge all African Americans or Hispanics as a group. There are assholes and then there are the truly generous, socially conscious people who are giving away millions. If a millionaire is stingy, most of the time it's because he's scared of losing what he's spent all his life accumulating. A lot of self-made millionaires got where they are because of fear.

Thanks for that reasoned post - very interesting. I knew some wealthy scions when I was in Peace Corps - and yes, they really played down their money, and if you found out about it, they would act guilty. And yes, this was Rhode Island wealth.

But as a tax source - I do think its fair to target those who have used the government - which includes many folks who are "making wealth"

That's reasonable.

I'm not saying they should stay that way, but we might need to go there someday...

Suppose the habitat of some endangered animal could be saved? Anonymously Suddenly some small ecosystem has a future again.

What if he GAVE his money away to a Humanitarian agency and moved to an apartment in the city?

How about that?

What if he was some scum-sucking coal mine owner who had an epiphany one day (or perhaps a nightmare of burning forever in a coal fired hell) who gave away his wealth by shutting down his mines cleanly and forever, dividing what was left of his wealth among the miners?

I'm a hypocrite to a certain degree, living as I do in my single family dwelling on the edge of a city with fairly usable public transportation, but something about Mark 10:25 resonates with me:

"It's easier for a camel to pass through the eye of a needle than it is for a rich man to enter the Kingdom of God."

Many other human religions have their own versions of that.

If I ever become crazy wealthy, I'd give it away. I've already got too much stuff. I'd much rather be wealthy like Stan Brock, founder of Remote Area Medical, or any number of people who realized life's not about the money.

http://www.ramusa.org/about/stanbrock.htm

When a rich person donates hundreds of acres of land that's been in his family for awhile, it's often more acreage than a conservation group could ever hope to buy.

We've gone through that in Maine. Sometimes conservation groups will try to buy tracts of land from regular landowners who want market value. And that adds up to a heck of a lot of money, because the sellers are in it for a buck (and no, those aren't the rich folks; those are landowners who want a fair price.) Why give your money to a conservation group to buy a few measly overpriced acres when you could donate far more acreage itself?

But I chose not to go there....and Conservatives note I could have gone there

because they use more resources like water for their yards and swimming pools.

Because, the truth is, many of them DO live next door to average people.

Yep the same dude who wrote on the hand of the marketplace (which was more of a gag and mentioned ONCE)

So next time you have an idiot argue with you that this is well...anti-capitalist, you can throw back at them the Head Priest of the Church, Mr Adam Smith HIMSELF.

The Pentagon = defense of their interests + corporate welfare

Payments on interest = most t-bills held by the rich.

Keeping in mind that the mandatory spending segments of the budget decried as "expenditures," such as SS and Medicare, are raised separately by regressive payroll taxes (FICA) and run with a surplus.

Makes perfect sense to me.

Simple and succinct.

the most to lose if any change in the status quo.

That waterfront property might not be worth as much if I anchor my boat in front of it and play loud Dean Martin songs. (Remember the Sopranos?)