Greg Mankiw, an energetic blogger (you may have heard of him? he teaches econ at Harvard? and used to advise President Bush?) wrote a super-compelling piece in Sunday’s New York Times, whose headline says it all: “Fair Taxes? Depends on What You Mean By Fair.”
It is about taxing the rich, and begins by explaining why Warren Buffett can afford to always complain that he pays a lower tax rate than his secretary: most of Buffett’s income is derived from dividends and capital gains, which are taxed at only a 15% Federal rate, as opposed to a Federal rate more than twice that for ordinary income, bonuses, etc.
Soon after, the article becomes more of a philosophical discussion about the rich and taxation, and it is well worth the read. Even more interesting are the comments about the piece on Mankiw’s blog.
But perhaps the very most interesting thing about the Mankiw piece is the lead: “Do the rich pay their fair share in taxes? This is likely to become a defining question during the presidential campaign.”
This is a classic in winking understatement, for Mankiw was not only an advisor to Bush, but is also (as duly noted in the bio on his piece) an advisor to Mitt Romney on Romney’s current campaign.
I applaud Mankiw, the Times, and Romney for having the courage to produce what is essentially a position paper on taxation in the pages of the Times. As long as everyone’s cards are on the table, which they are here, I see no harm. But I sure would have liked to see the e-mails back and forth between the Mankiw and the Romney camp as the Times piece was being edited; and it sure will be interesting to see how this trenchant piece of tax commentary plays out in Romney’s campaign. I can just imagine one of his opponents whipping out the Mankiw article a few weeks or months from now and waving it in his face — “So the rich pay too much tax, huh?”
From 1 to 25 of 50 Comments
“Warren Buffett can afford to always complain that he pays a lower tax rate…”
“Complain”? More like “brag”!
— mgrovesTo libertarians like Professor Nozick, requiring the rich to pay more just because they are rich is little more than officially sanctioned theft.
There’s that word again, libertarian. What the heck is a libertarian? Show me a libertarian form of guvment. Has there ever been one? Have there ever been politicians elected to do nothing? I thought it might be the 1994 Republicans. But they wanted desperately to get into my pants. Into my bedroom. And certainly into my religion. And into foreign wars.
Please someone! What is a libertarian?
Vote Ron Paul!
— egretmanWhether you agree with him or not, Buffett is most certainly complaining about the lower tax rate.
In one of his big position pieces (http://www.berkshirehathaway.com/letters/2003ltr.pdf) he notes that for 2003 Berkshire Hathaway paid 2.5% of all corporate income taxes in the United States. The tone of the while piece is essentially that he does not think the wealthiest people and companies pay a fair share of taxes.
— mathkingI also note that on Mankiw’s blog, he incorrectly asserts that the CBO numbers he cites include payroll raxes. For the median $56200 the FICA taxes average just over 12% of total income. And those people are not paying less than 2% of income in income and other federal taxes.
— mathkingThis is yet another reason to support a flat tax or no income tax at all (just sales tax) and why I’m going to be voting for Ron Paul.
The government should not discriminate people based on their income. The poor and rich should be taxed the same.
— yorktApropos to all discussions of tax policy and fairness is this poem, most commonly attributed to former Louisiana Sen. Russell Long:
“Don’t tax you,
— zbicyclistdon’t tax me,
tax that fellow behind the tree.”
As long as Mankiw and others can obfuscate the issue, young people will never find out that we baby boomers are sucking them dry.
A year ago, I began asking young people what their effective tax rate is. Most don’t know. Those that do get upset when I compare theirs to mine. Then, I point out that they pay FICA on all or most of their income. I pay a much smaller proportion.
Usually, by this time they are hopping mad. But if you really want to get them riled, just explain how medicare will cover us baby boomers soon, while many of them have to pay thousands out of their own pockets.
Aww, fond memories.
— egretmanyorkt,
— pparkmanWhy shouldn’t the government discriminate based on income? It’s seems to me that it’s the most efficient way to discriminate. It’s as simple as those with the most privileges ought to bear the most responsibility. If the rich people have come out on top because of their skills, then society benefits from having them more invested in government’s performance (because they are footing the bills). If they are just rich because they’re lucky, then they aren’t deserving of any better lifestyle than the rest of us, and we should tax them to equality.
I see that charities are sound and well in Chicago. Can you make voluntary donations or are amounts mandatory?
Kindest,
.lermit
— lermitI think I like Warren Buffet’s idea of 100% estate tax for $50M+ estates. That sounds like it would help keep us middle class folks from running out of money to spend on the production of produced by the “earned” wealthy. Education, transportation, and housing are getting harder and harder to pay for.
— watchingmachinesWhat’s the magic to looking at only the federal tax bite? If “fair” is the issue, should I care which level of government is doing the taxing?
The reason this is important is because many of the taxes common at the state and local level (sales tax comes to mind) tend to take a higher percentage of income at lower levels.
At least, that’s my impression. But it’s an empirical issue and it would be nice to have some data. I am unable to find recent data on the total tax burden by income tier. Anybody have any handy?
I found some from the Tax Foundation, but using using 1993 data (beginning of Clinton adminstration).
That study suggests the average effective tax rate (federal, state and local) was 34.6% overall.
If you earned under $30,000, it was about 28%
If you earned $150-$300,000 it was about 39%
Above $750,000 it was 45%.
Note these are total tax bites, NOT marginal.
http://www.taxfoundation.org/files/f0d61da2a1658d1a7580498fc0583ee2.pdf
That’s still progressive overall, but nowhere near as progressive as Mankiw’s numbers.
— zbicyclistThere are two factors that Prof. Mankiw chose to ignore:
1. FICA taxes must have been omitted to come up with the low end percentages.
2. Since the wealthy and well to do have an inordinate influence on defining “fair” through their donations to political campaigns, their lobbyists and by being overrepresented % wise in Congress… it stands to reason that the tax rates have long since been set to benefit them more than the less affluent. I suspect that “fair”, if defined as relative taxation for relative representation would require a more severe graduated income tax.
— edwinleeWe need a constitutional ammendment that says “No one should be compelled to work more for the common good than for themselves.”
Total tax (income, property, FICA, SS, Medic*, sales, cap gains, fuel, AMT, liquor, tobacco etc)
Limit the take to half and then let the gov’ts fight over who gets what.
— 711buddhaThere’s no such thing as a *fair* tax, so what you really have to decide is how much any tax will help or harm individuals and the economy as a whole, and how enforceable it is.
Even a flat tax can seem to be unfair to the rich. After all, if I make $1M/year (which I don’t) and someone else makes $50K/year, why should I have to pay $250,000 for the same police, firefighting, roads, defense, etc. that the other guy gets for $12,500? Should I be willing to pay $300 instead of $15 to see a movie, or $600,000 instead of $30,000 for a minivan, just because I’m wealthier?
Even a progressive tax system can seem to be unfair to the poor. Fifteen percent of $50K means a lot more to most people than 40% of $1M. That $15,000 could help pay my mortgage or car payments, save for retirement or my kids’ education, etc., while the $400,000 for the richer person probably goes into luxuries or investments.
In the end, though, the brutal truth is that the more heavily you tax a rich person, the sooner he or she will leave. In the 1970s, the rich left the UK to live in the US. In the 1990s, the rich left the rest of Europe to live in the UK. Wealth is very mobile, while poverty seems to just stay put.
— dpmMankiw is a lazy thinker or intentionally dishonest in his assessment.
He begins by obfuscating Buffett’s point about unfair relative effective tax rates with the fact that rich people pay more taxes over all. Well duh. No where does he directly refute Buffett’s main point that some rich should pay proportionally more than they do. Instead, he tries to convince you that they do based on total tax paid. Buffett’s point still stands. 35% on you is a lot more unfair than %15 on a millionaire. Even if the millionaire pays more in taxes.
Then to attack the unfairness of the rich paying more, he uses some libertarian utopian professor’s dream that the rich are better than you are. Therefore, they deserve to keep more of their money than you do. Ok, why not just say that. Why pretend that taxing the rich more is theft?
Then to add insult to injury, he pretends that Bush’s tax ceiling is 1/3 of all earnings. When Buffet would just like every rich person to pay even Bush’s supposed 1/3 share ceiling. Many rich people, including myself, pay only 15%.
Really, Mankiw makes a poor argument. I’m hoping that Ron Paul’s advisors are better than this.
“Vote Ron Paul, and don’t pay any taxes!”, is actually more intellectually honest than Mankiw is.
— egretmanJust read the comments on Mankiw’s blog post. Does calling Democrats ’socialists’, as some poster(s) there do, seem as ridiculous to Americans as it does to those of us in the UK?
— elfyI’d like to see a politician propose an alternative to income taxes. Taxes are disincentives. The government could discourage things other than earning labor wages and returns on investment. Recent guest blogger Robert Frank is in favor of a progressive consumption tax to discourage frivolous spending by the wealthy and the inevitable “keeping up with the Jonses” that trickles down and encourages debt to mount.
I’d be interested to hear other potential income tax replacements that discourage undesirable behavior and outcomes, rather than just tweaks to the current system.
Also, Re #11:
Tax burden as a percentage by tier can be calculated from the graphic in the NYT column (if you agree with the CBO’s assumptions on where to place the payroll and corporate tax burdens):
Lowest Quintile: 0.9%
— WholeMealOfFoodSecond Quintile: 4.6%
Middle Quintile: 10.0%
Fourth Quintile: 18.0%
Highest Quintile: 66.5%
If the corporation is a legal person (with certain rights seemingly more inalienable that those of natural folks), then jeepers, isn’t it the legal person who’s paying corporate taxes under Subchapter C of the Internal Revenue Code, not the shareholder?
The cashier at Wal-Mart effectively pays 15.3% in FICA & Medicare (yes, 7.65% of this is paid directly by Wal-Mart, famous for its generosity).
The members of the Walton family (five of the ten richest Americans & not exactly noted for their industriousness since Sam’s death), pays 15% on the lion’s share of their income, Wal-Mart qualified dividends.
If the Walton family believes they’re being overtaxed, I suggest that they compel the Wal-Mart Board to liquidate the corporation. Heh.
Far from being unjust to capital, the second layer of taxation (Subchapter C + dividends) is the (IMHO more than fair) price of the corporate veil.
While small businesses can’t avoid the burden of FICA/Medicare via self-employment taxes, they can & generally do avoid Subchapter C double taxation.
I like the 15% capital gains rate: productive folks can cash out keep about 80% of their gains.
The 15% qualified dividend rate, OTOH, is a joke and should be repealed.
Bill Brock, Chicago
— billbrockEveryone pays too much in taxes. Including the rich. Why is it alright to force someone to give their money to someone else just because they have more? I never understood that logic. And why hat ethe rich? They’re the ones with all the jobs — I never worked for a poor person. And besides, companies offset the taxes of CEOs with higher wages, which they make up for with higher prices. And corporate and business taxes are made up for in the same way. So all anyone does by raising the taxes of the rich is raise prices for everyone — the cost of taxes trickles down to the poor and middle class (anyone who buys anything). And then, the states get us once again, since sales taxes are a percentage of sales — and higher prices means you will pay more in sale taxes! If you want to get right down to it, the only people who do or ever will pay taxes are workers. So all taxes increased on anyone in this country only works to hurt them.
— zatavuWholeMealOfFood (#16) responds to my suggestion in #11 that the overall tax burden is much more evenly distributed than Mankiw’s numbers suggest (once you add in FICA, state tax, local tax, etc.) by putting out a series of numbers that have no relationship to my argument whatsoever.
— zbicyclistThe question no one every seems to bring up in discussion of taxes is the services the taxes pay for. Who benefits the most from the government’s spending? Who benefits the most from the economic system the government maintains?
Why is it alright to force someone to give their money to someone else just because they have more? I have two answers to this one. The first: If everyone paid the same amount of money, it would have to be a low enough amount that everyone could pay it. So we could afford a couple percent of our federal budget, maybe. The second: The wealthiest Americans benefit significantly more from government services than everyone else.
— mathkingFirst, excerpts from…
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Where is the outrage over sky-high taxes, regulatory costs?
by Jim Higgins
7/15/07 - New Haven (CT) Register (Fair Use excerpts)
“Reports last week from two nonprofit groups should serve as a wake-up call to Americans to start agitating for tax reform . . .
“On Monday, the Competitive Enterprise Institute reported that the cost to consumers of complying with federal regulations exceeded $1 trillion in 2006 . . . almost 10 percent of the nation’s gross domestic product. It’s nearly half the amount of government spending.
“Even more worrisome, the cost of complying with these multitudinous regulations exceeds the amount of individual income tax paid in 2006, about $998 billion, as well as corporate incomes taxes of $277 billion.
“According to the Washington, DC-based advocacy group [ Americans for Tax Reform ], the average American had to work through July 11 this year just to pay all federal, state and local taxes, as well as regulatory costs including workers’ compensation and unemployment benefits.
“Congress should take one of two paths: Either cut tax rates and government spending drastically, or adopt the FairTax, an innovative proposal that would involve abolishing the Internal Revenue Service and its income tax and replacing it with a simple national sales tax.”
Full article here: http://snipr.com/wherestheoutrage
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The U.S. income tax system and the U.S. economy are inter-related, and are in DIRE trouble. If we, the citizens of these United States, do not act aggressively to spread the FairTax plan with family, friends and associates - our “nest eggs” stand to be devastated through a coming economic meltdown (see Kotlikoff interview, below).
Politicians are putting demogoguery and pandering above responsible governing - and they’re able to do it because Americans do NOT understand - at the “get go” - politicians’ / bankers’ hunger for ever-increasing shares of the working person’s bi-weekly paycheck; Americans do NOT understand the totality of taxes they pay. The FairTax shines the “light of day” on this, putting citizens back in charge to forcefully demand spending reductons.
YOU AND I MUST ACT to mobilize public opinion, and get the FairTax enacted, because the signs point to a probable devaluation of the dollar (for reissuance of an “Amero” ? - under a U.S.-sovereignty-busting North American Union? http://youtube.com/watch?v=6hiPrsc9g98 )
[ NOTE: Does this help clarify your understanding of what's going on globally? a) Bush's persistence on rewarding illegal immigration? b) the North American Highway now under construction in Texas (to stream cheap labor into the covertly-planned North American Union marketplace designed to compete with 21st-century China market? c) the gradual increase in value of the Chinese yuan by China corresponding to China's economic growth? (This will result in the dumping of dollar-denominated debt as its manufacturing economy grows stronger - which guarantees devaluing and ushering-in of the Amero.) ]
Keep in mind, this NAU strategy - supported by the “super-rich” (member-owners of the Fed) - together with their politician buddies who want NOTHING to do with FairTax - runs contrary to simply making the U.S. a “tax free zone” for business under the FairTax. Politicians and bankers lose power when the U.S. is returned to a “savings-driven economy” from a “debt/interest-driven” economy).
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Read the summary, “Laurence J. Kotlikoff (*) on Long-Term Fiscal Problems in the U.S.,” and download the podcast here: http://taxfoundation.org/news/show/1859.html
(*) Prof. Laurence Kotlikoff (expert economist, and advocate, of the FairTax plan)
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Powerful “elites,” members of political and monied-interest “clubs” reaching into the halls of power in Washington, depend on keeping you and me uninformed of their plans. It is up to YOU and ME to ACT - and not live in a state of denial - based on what we now know is clearly happening to our financial futures.
After you consult the Kotlikoff interview (above):
• (If you’re a member of your State FairTax organization) Contact your state or local FairTax Director to learn what you can do. Find yours here: http://snipr.com/localftleaders
• (If you’re just learning about the FairTax bill) Join FairTax.org here: http://snipurl.com/scrapthecode
— ih2005Oh yes, the dream presidential ticket would be Ron Paul and Neal Boortz. The Fair Tax meets libertarianism and the gold standard.
— egretman“Do the rich pay their fair share in taxes? This is likely to become a defining question during the presidential campaign.”
It’s actually highly unlikely to become a defining question. Like deep health care reform, deep tax reform is an issue in deep stasis. The fact that it is trotted out and the same rhetoric is repeated every 4 years should not be confused with a “defining” question that has any hope of revealing anything unexpected or leading to significant change.
I view both these issues as being frozen in Nash equilibriums. While the nation as a whole might be significantly better off with revised tax or health care systems, such alternative states can only be reached via steps that involve at least short-term penalties for various controlling interests — especially for any interests that attempt to lead the change, if they find that no one else is following their lead. Barring unforeseen (and probably unforeseeable) events, no large changes in tax reform or health care are possible this election cycle.
— ronburkThe big surprise about fair progressive tax rates is that no country seems to treat the top end appropriately.
— stu4rtmCurrent statistics are that the top 3-4% of earners are experiencing massive earnings increases, while most Americans are in fact losing ground. This group is prospering in proportion to its use of political influence, and presumably to the detriment of the greater part of the polity.
The ability of extremely wealthy individuals (or corporations) to influence political decisions in their favor is an imposition on their fellow citizens for which they should properly pay.
In any hypothetical republic, mathematicians would graduate tax rates at each additional zero.
So why not?