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Thread: Tax Rates, Inequality and the 1%

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    Tax Rates, Inequality and the 1%

    Great article exposing the lies liberals use to fool the masses.

    [url]http://online.wsj.com/article/SB10001424052970204630904577062661910819078.html?mod=WSJ_Opinion_LEADTop[/url]

    A recent report from the Congressional Budget Office (CB0) says, "The share of income received by the top 1% grew from about 8% in 1979 to over 17% in 2007."

    This news caused quite a stir, feeding the left's obsession with inequality. Washington Post columnist Eugene Robinson, for example, said this "jaw-dropping report" shows "why the Occupy Wall Street protests have struck such a nerve." The New York Times opined that the study is "likely to have a major impact on the debate in Congress over the fairness of federal tax and spending policies."

    But here's a question: Why did the report stop at 2007? The CBO didn't say, although its report briefly acknowledged—in a footnote—that "high income taxpayers had especially large declines in adjusted gross income between 2007 and 2009."

    No kidding. Once these two years are brought into the picture, the share of after-tax income of the top 1% by my estimate fell to 11.3% in 2009 from the 17.3% that the CBO reported for 2007.

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    The larger truth is that recessions always destroy wealth and small business incomes at the top. Perhaps those who obsess over income shares should welcome stock market crashes and deep recessions because such calamities invariably reduce "inequality." Of course, the same recessions also increase poverty and unemployment.

    The latest cyclical destruction of top incomes has been unusually deep and persistent, because fully 43.7% of top earners' incomes in 2007 were from capital gains, dividends and interest, with another 17.1% from small business. Since 2007, capital gains on stocks and real estate have often turned to losses, dividends on financial stocks were slashed, interest income nearly disappeared, and many small businesses remain unprofitable.

    The incomes that top earners report to the IRS have long been tightly linked to the ups and downs of capital gains. Changes in the tax law in 1986, for example, evoked a remarkable response—with capital gains accounting for an extraordinary 47.7% of top earners' reported income as investors rushed to cash in gains before the capital gains tax rose to 28%.

    That was obviously temporary, but the subsequent slowdown in realized gains lasted a decade. Taxable gains accounted for only 16.7% of the top earners' income between 1987 and 1996. And the paucity of realized capital gains kept the top earners' share of income flat.

    When the top capital gains tax fell to 20% in 1997 and remained there until 2002, realized capital gains rose to 25.4% of the top earners' income, and it explained much of the surge of their income share to 15.5% in 2000. Stock gains were more modest from 2003 to 2007, yet the tax rate on profitable trades was down to 15%, so realized capital gains rose to 26.7% of income reported by the top 1%.

    True enough, capital gains are not the whole story, and the CBO's report, "Trends in the Distribution of Household Income Between 1979 and 2007," notes that "business income was the fastest growing source of income for the top 1 percent." But that too was a behavioral response to lower tax rates.

    In 1988, business income jumped to 16.5% of the reported income of the top 1%, from 8.2% in 1986. Why? As the CBO explains, "many C corporations . . . were converted to S corporations which pass corporate income through to their shareholders where it is taxed under the individual income tax."

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    The CBO estimates top incomes from individual tax returns. So it looked like a big spurt in top income in 1988 when thousands of businesses switched to reporting income on individual rather than corporate returns as the top individual tax rate dropped to 28% from 50%.

    In reality, it was just a switching between tax forms to take advantage of the lower individual tax rate. Such tax-induced switching from corporate to individual tax forms in 1986-1988 makes it illegitimate to compare top income shares between 1979 and 2007.

    After the tax rate on dividends fell to 15% in 2003 from 35%, the share of income reported by top earners from dividends doubled to 8.4% in 2007 from 4.2% in 2002, according to similar tax-based estimates from economists Thomas Piketty and Emmanuel Saez. Top earners held more dividend-paying stocks in taxable accounts rather than in tax-exempt bonds, or they kept dividends in tax-free retirement accounts.

    In short, what the Congressional Budget Office presents as increased inequality from 2003 to 2007 was actually evidence that the top 1% of earners report more taxable income when tax rates are reduced on dividends, capital gains and businesses filing under the individual tax code.

    If Congress raises top individual tax rates much above the corporate rate, many billions in business income would rapidly vanish from the individual tax returns the CBO uses to measure the income of the top 1%. Small businesses and professionals would revert to reporting most income on corporate tax returns as they did in 1979.

    If Congress raises top tax rates on capital gains and dividends, the highest income earners would report less income from capital gains and dividends and hold more tax-exempt bonds. Such tax policies would reduce the share of reported income of the top earners almost as effectively as the recession the policies would likely provoke. The top 1% would then pay a much smaller portion of federal income taxes, just as they did in 1979. And the other 99% would pay more. As the CBO found, "the federal income tax was notably more progressive in 2007 than in 1979."

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    im so glad someone is out there, looking out for the 1%. keep fighting the good fight chiefs.

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    “The best argument against democracy is a five minute conversation with the average voter.”

    “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”

    “Democracy and socialism have nothing in common but one word, equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.”

    “Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.”

    Occupy 4eva!

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    [QUOTE=bitonti;4266117]im so glad someone is out there, looking out for the 1%. keep fighting the good fight chiefs.[/QUOTE]

    Shocking that the Wall Street Journal would present a view that is favorable for the wealthiest Americans :eek:

    Next we will find out that Ed Schultz will come out in support of the occupy movement but Sean Hannity will not.
    Last edited by intelligentjetsfan; 12-06-2011 at 10:35 AM.

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    Since we have gridlock the economy is improving. It's clear that a do nothing government is much better for the economy than a do something government. Government gridlock is saving our country not destroying it like some would have you believe.

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    [QUOTE=bitonti;4266117]im so glad someone is out there, looking out for the 1%. keep fighting the good fight chiefs.[/QUOTE]

    Just pointing out the lies being fed to this country with Obamas class warfare strategy. If you want to understand how your leadership is pulling the wool over your eyes while allowing the economy to tip over the cliff the recent millionaires surtax push is a great example. We have a 1.7 trillion dollar deficit and the Democrats keep saying that taxing millionaires and billionaires is the solution. Yet even the surtax they proposed to pay for a 1 year stimulus would only raise around 30 billion per year. The point is that your leadership is telling you that the solution to the country's fiscal crisis is taxing the rich when they are well aware that no level of taxation can solve or even dent the problem. It's the blatant lying that bothers me.

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    [QUOTE=Winstonbiggs;4266158]Since we have gridlock the economy is improving. It's clear that a do nothing government is much better for the economy than a do something government. Government gridlock is saving our country not destroying it like some would have you believe.[/QUOTE]

    Not sure how gridlock will help reduce the deficit but i do agree that blocking Obama's left wing agenda is a great first step in saving the economy.

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    [QUOTE=intelligentjetsfan;4266155]Shocking that the Wall Street Journal would present a view that is favorable for the wealthiest Americans :eek:

    Next we will find out that Ed Schultz will come out in support of the occupy movement but Sean Hannity will not.[/QUOTE]

    Disprove what he said...

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    [QUOTE=intelligentjetsfan;4266155]Shocking that the Wall Street Journal would present a view that is favorable for the wealthiest Americans :eek:

    Next we will find out that Ed Schultz will come out in support of the occupy movement but Sean Hannity will not.[/QUOTE]

    Shame on the WSJ for reporting facts. The 2008 and 2009 data should surely be omitted. :rolleyes:

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    [QUOTE=chiefst2000;4266186]Not sure how gridlock will help reduce the deficit but i do agree that blocking Obama's left wing agenda is a great first step in saving the economy.[/QUOTE]

    The handful of brilliant people who are developing great products and ideas will drag the rest of us forward regardless of the anchor that government throws out to hold us all behind.

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    [QUOTE=chiefst2000;4266186]Not sure how gridlock will help reduce the deficit but i do agree that blocking Obama's left wing agenda is a great first step in saving the economy.[/QUOTE]

    Gridlock will at least slow the spending and reduce if not stop NEW spending. It won't reduce the deficit until GDP increases vs spending which will then allow the deficit to be reduced. It can also slightly increase taxes by allowing tax cuts to expire so that if there is no new spending to absorb the increase in taxes there is a chance that new money can be used to pay down debt.

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    [QUOTE=Winstonbiggs;4266265]The handful of brilliant people who are developing great products and ideas will drag the rest of us forward regardless of the anchor that government throws out to hold us all behind.[/QUOTE]

    Unless we are completly dragged into socialism/communism. How were the innovators treated in Cuba, China and the USSR?

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    [QUOTE=Winstonbiggs;4266265]The handful of brilliant people who are developing great products and ideas will drag the rest of us forward regardless of the anchor that government throws out to hold us all behind.[/QUOTE]

    They will do their best. Even Obama despite all of his efforts is having a hard time completely stomping out Americans entrepreneurial spirit. But a tipping point could be nearing. If the economy stays on course eventually the pain we will need to go through to address our problems will be much greater.

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    Question for the forum:

    Lets say one of the evil 1%ers buys a munibond to avoid paying some taxes. The Muni bond pays a 3% interest rate. That same investor passes up the opportunity to buy an equally rated corporate bond paying 4.5% but subject to taxation. Is the resulting difference of 1.5% essentially taxes paid? Would that for this examples sake be equal to paying a 30% tax?

    From another angle lets say the state of NY needs to borrow money. Assuming no tax incentives the State would need to offer 4.5% interest to find investors. Now tack on the tax savings and the state can borrow at 3%. Should that dollar savings to the State be considered tax revenue?

    Would it be better for the country to simply eliminate the tax incentive for buying municipal debt and simply pay the market interest rate then tax the interest income even though in the end of the day the accounting for this would result in equal dollars to the current system?

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    Assume we raised rates on the top 1 percent? What then... this government is the most bloated, inefficient bunch of spenders of others money it wouldnt make a difference.

    SPENDING and bloated entitlement including and especially the growth of the the number of government employees is killing this country. Paying wages and benefits that put out of business ANY private company.

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    [QUOTE=chiefst2000;4266284]Question for the forum:

    Lets say one of the evil 1%ers buys a munibond to avoid paying some taxes. The Muni bond pays a 3% interest rate. That same investor passes up the opportunity to buy an equally rated corporate bond paying 4.5% but subject to taxation. Is the resulting difference of 1.5% essentially taxes paid? Would that for this examples sake be equal to paying a 30% tax?

    From another angle lets say the state of NY needs to borrow money. Assuming no tax incentives the State would need to offer 4.5% interest to find investors. Now tack on the tax savings and the state can borrow at 3%. Should that dollar savings to the State be considered tax revenue?

    Would it be better for the country to simply eliminate the tax incentive for buying municipal debt and simply pay the market interest rate then tax the interest income even though in the end of the day the accounting for this would result in equal dollars to the current system?[/QUOTE]

    That is way too logical. The difference is in who gets the tax money in the end. In the current scenario the municipality is basically getting the money instead of the federal government. To me getting that money directly to the municipality is better.

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    [QUOTE=southparkcpa;4266289]Assume we raised rates on the top 1 percent? What then... .[/QUOTE]

    bills would get paid

    right wingers love to talk about cutting future spending and that's great but we have big obligations that we already agreed to... and we need to raise revenues to meet those obligations. Cutting the spending in 2012 doesn't pay for the war in 2003.

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    [QUOTE=chiefst2000;4266185] Yet even the surtax they proposed to pay for a 1 year stimulus would only raise around 30 billion per year. [/QUOTE]

    what's 30 billion among friends?

    i love these arguments. Policy X won't solve all the USA's problems therefore it sucks.

    the GOP Doesn't actually make laws, pass bills or have ideas. Obstruct, repeal and cry. Root for a double dip.

    Thanks for that... really... it's a great help.

  19. #19
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    [QUOTE=bitonti;4266329]the GOP Doesn't actually make laws, pass bills or have ideas. Obstruct, repeal and cry.[/QUOTE]

    How many Bills has the (R) House Passed.

    How many Bills has the (D) Senate Passed.

    I'll wait.

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    [QUOTE=Warfish;4266343]How many Bills has the (R) House Passed.

    How many Bills has the (D) Senate Passed.

    I'll wait.[/QUOTE]

    the house passing bills that have no chance of making it through isn't really legislating. It's a play act. It's very easy to vote for these bills that are dead on arrival.

    Say what you want about Obamacare, it was a huge piece of legislation and historic that it got passed. What's the last piece of successful legislation the GOP was responsible for? the Patriot act? 10 years ago?

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