84.9% Top Income Tax Rate Needed to Close Deficit

Discussion in 'Politics, Religion, Social Issues' started by rhsgolfer33, Mar 12, 2010.

  1. rhsgolfer33 macrumors 6502a

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    #1
    The Tax Foundation has published an article entitled, "Can Income Tax Hikes Close the Deficit." Here is a nice snippet:

    See article for Table 1.

    I should also add, this is for the tax year 2010. The rate would be lower in forthcoming years as the deficit is expected to be lower, nonetheless, substantial increases would be needed; the article provides more information as to what The Tax Foundation thinks those rates would need to be.

    Interesting article. It suggests we need tax increases combined with large spending cuts in order to eliminate the deficit or a major overhaul of the tax code to generate an obscene increase in revenue; neither seems very likely to happen. Makes me think about whether or not this is the country I want to attempt to accumulate wealth throughout my career in.
     
  2. flopticalcube macrumors G4

    flopticalcube

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    #2
    Prosperity through taxation never works, although taxes both direct and indirect will be going up in the future.
     
  3. ucfgrad93 macrumors P6

    ucfgrad93

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    #3
    While I am fairly confident that we will see tax increases, I'm extremely skeptical that we will see any significant spending cuts to go with it.
     
  4. GfPQqmcRKUvP macrumors 68040

    GfPQqmcRKUvP

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    Where else, China? I ask because most industrialized countries are in very similar situations: huge deficits, large public debt, and very little they're willing to do to rectify the situation. The worst part is that doing something to fix the problem would be politically unpopular, and thus probably won't be attempted. Look at Greece right now for a template on how other countries are going to play out. They're in risk of default and their public sector employees are striking because of wage freezes.

    Put simply, the sum of all the spending initiatives that the public is always sold on ("we need this", "this is going to be good for the future", etc...) is a massive amount that will not be able to be paid down. It doesn't matter though to these people. We see it on this very forum all the time. If people only knew the practical implications of over-spending they might not be so quick to argue for extensive entitlement programs or any other morally-worthy cause that strikes their fancy.
     
  5. Eraserhead macrumors G4

    Eraserhead

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    You don't have to close the gap with income taxes alone. 84.9% is ridiculous though.
     
  6. freeny macrumors 68020

    freeny

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    I hear Somalia has little to no taxes, you could try there...
     
  7. Zombie Acorn macrumors 65816

    Zombie Acorn

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    You don't have anymore right to the country than anyone else. Maybe you should go to Somalia and spend tons of money and then ask the people to pay you for the services you are providing. See how well that works out for ya.
     
  8. Saladinos macrumors 68000

    Saladinos

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    Not yet, but most economists seem to think that preserving recovery (i.e. by keeping public spending high) is the most important thing right now. It IS a gloomy picture, but debt is a medium-term problem. We know it's a growing problem, but we have to keep it growing or economic growth might stumble.
    much."
     
  9. freeny macrumors 68020

    freeny

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    #9
    ????
    :confused:

    and left field was my position in HS baseball... I need to pay more attention...
     
  10. mkrishnan Moderator emeritus

    mkrishnan

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    #10
    This is kind of a silly study... I mean, no one is going to get taxed 85% of their income.

    At the same time, I think that liberals and conservatives have to agree that we can't treat our deficit like people treated credit cards in the 90s. We have got to get this thing under control, or else simple economics is going to kill this country as its debt-to-earnings ratio sours progressively.

    It's a fair point that we can't overcome this purely through aggressive taxation. I would say it's an equally fair point that, when one looks at the history of the Republican model of lowering taxes to stimulate growth and cutting government programs to compensate, there is little evidence that this approach has been successful at managing the US budget deficit or the debt. Maybe this is because, every time the GOP talks about cutting government spending, they cut $1.00 out of social services and spend an extra $1.50 on the military. Maybe it's not.

    Bottom line, were one (not that anyone here is doing that) to view this as an endorsement of the GOP/TP desire to cut taxes and spending as an approach to solving this problem, that would be completely absurdist.
     
  11. freeny macrumors 68020

    freeny

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    ^^
    yes, decrease spending on military, get spiraling healthcare costs under control, cut big biz tax breaks and raise some taxes.
     
  12. skunk macrumors G4

    skunk

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    #12
    Such short memories! Well, actually it was probably before your time, but I remember an 85% "Super Tax" in the UK. Lots of rich bastards upped and left, at least for tax purposes. The strange thing was that tax take was less then than after Thatcher came in and reduced it to a 40% top rate.
     
  13. Rodimus Prime macrumors G4

    Rodimus Prime

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    It is sad and the massive spending is proof that our government no longer does what is the best for the people. They only do what gets them re-elected which means short term only.

    Short term you can get away with massive spending with no way to pay for it but long term that screws you over. It is just like credit card abuse. I can go max out my credit card and buy 10-15k worth of crap that I have no way to pay for and it is great until I have to start paying it off and then I become screwed.
    Our goverment is an example of credit card abuse as they spend spend spend but do not want to pay for it.

    Cutting spending or raising taxes are both politically unpopular and will cost them re elections. Short term thinking is what got us in this mess and we need long term thinking to get us out.
     
  14. CaptMurdock macrumors 6502a

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    Wow...Long term thinking...such a radical concept...

    Okay, since Teh Evil Federal Gubmint is currently composed of short-term nogoodniks who are only concerned about getting reelected...just who do you propose We The People (tm) put in to straighten the mess out?
     
  15. flopticalcube macrumors G4

    flopticalcube

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    The people are part of the problem. Most voters vote for short-term personal interests as well. The last long-term thinker who was a presidential candidate that I can remember was Ross Perot.
     
  16. CaptMurdock macrumors 6502a

    CaptMurdock

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    I think you hit the nail on the head, champ. It's those damn people! A pox on them all.

    Maybe Sheldon will be right: "When the robots take over, my ATM will be leading the charge!"
     
  17. rhsgolfer33 thread starter macrumors 6502a

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    Agreed. A lot of people don't seem to understand who is going to pay for governments they elect; its us. Ultimately, to ensure that we don't end up looking like Iceland, we will have to pay the increased taxes to make up for the last 10 years of debauchery our government has engage in.

    Or you could go the Cayman Islands, Monaco, the Bahamas, the U.S. Virgin Islands, the British Virgin Islands, the UAE, or various other tax haven countries with either no personal income tax and low overall taxation or very low income tax rates and low overall taxation.

    There are plenty of countries/territories/principalities that people would actually want to live in that have extremely favorable taxation. Of course, the catch is that in order to not be taxed by the U.S. government on foreign income you really need to renounce U.S. citizenship and obtain citizenship in one of those favorable countries (from what I've heard, you can essential buy it in a few of these places if you meet the right official).

    Agreed entirely. As much as I hate to see taxes increase, the only possible way to ensure there is not deficit is to increase taxes while cutting spending.

    The good news is that an 85% rate isn't needed for ever and there are other ways to raise revenue without creating an 85% rate. Additionally, as we pay off the interest and large amount of government debt outstanding, the revenue we need to generate will decrease and the tax rate should be able to be reduced.

    Its not surprising that a rate like that would result in lower revenue. An 85% rate creates a lot of incentive to shelter assets and income offshore, to under report it or be paid under the table, and to generally engage in any activity that lowers taxable income. When the rates are 85%, the benefit of engaging in this type of behavior exceeds the possible cost associated with being caught for a lot of people.

    The graph of revenue via income taxation is probably like an inverted, shallow U; there is a point on that graph where maximum revenue is achieved, but attempting to increase tax rates beyond that point will result in less revenue.

    On a lighter note, I'm glad some people actually responded to this thread; my first try was an utter failure response wise. :p
     
  18. freeny macrumors 68020

    freeny

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    "Or you could go the Cayman Islands, Monaco, the Bahamas, the U.S. Virgin Islands, the British Virgin Islands, the UAE, or various other tax haven countries with either no personal income tax and low overall taxation or very low income tax rates and low overall taxation."

    what kind of "wealth" could one amass there as the OP stated? Serious question...

    As far as I can tell, the Cayman Isles, Bahamas, Brit and US Virgin isles make most of their money from tourism, Monaco from casinos, UAE from oil and development... In Somalia you could at least make a load from drugs...
     
  19. flopticalcube macrumors G4

    flopticalcube

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    Many of these places are offshore banking centers so if you have any experience in banking or finance, you could obtain employment (perhaps). Most people that use these places as tax havens have "international" income. Think rock star, heiress, etc...
     
  20. Desertrat macrumors newbie

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    #20
    "...most economists seem to think that preserving recovery (i.e. by keeping public spending high) is the most important thing right now."

    "...preserving..."? ROFLMAO! We're nowhere near bottom, friend. Those "green shoots" are mostly poison ivy.

    rhs, if you want to accumulate wealth, invest in companies which make products for sale to major buyers. Right now, commodities are the best sector.

    One example: There's a $50 billion project getting underway in Australia; a natural gas project to export LNG. There are only a few companies which make the necessary equipment to do all the liquifefaction process. Those companies will sell into the development, even if the development eventually fails for whatever reason. But, you don't invest and then go off and forget about the deal. None of this "pitch it in the closet and forget it."

    Food production in Brazil is another arena; China outsources food.

    To avoid taxation, give up US citizenship, learn a foreign language and culture, and earn citizenship in a country which has a low rate of taxation on personal income. You can still come back to the US for visits, and own property here as you wish. LIke I heard from a Canadian lady, down in the Turks/Caicos, "The States are a wonderful place to shop, but I certainly wouldn't want to live there."

    There are beaucoup investments out there with a reliable rate of return of ten percent per year and better. And not particularly risky, either. As far as risk, cautious judgement about high-risk investments can pay off just once and make up for partial losses on others. But ya gotta build up enough investment capital to have that 5% to 10% to risk.

    As far as the US public outrage against cuts, hey! As a society, we started lining up at the tax-dollar hog trough in the 1930s. We're pretty well house-broke to figure Big Nanny's gonna always take care of us. Guess what? She's broke. All us moochers with our "programs" have killed that golden goose. (Madoff was a piker.) Sure, lotsa funny-money creation going on, but that's not gonna fly much longer.

    Smart folks are generally getting out of dollar-denominated investments and currency. Commodity countries are good; energy-independent countries are good. If not "good-good", they're at least better than here. :)

    Me, I'm pretty much stuck here. Too old to go. But I could see by the mid-1980s that some sort of melt-down was coming and got prepared as best I could. So, I'll mostly sit back and watch.

    'Rat
     
  21. NT1440 macrumors G4

    NT1440

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    I'm a bit confused about this. Does it mean those rates are needed to close the gap this year?

    I don't see anything wrong with upping taxes a bit and cutting spending a whole lot (hopefully from military spending amongst other things) for the next decade if we want to be serious about shrinking the debt of the country.
     
  22. Desertrat macrumors newbie

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    NT1440, not even confiscatory taxes could close the deficit this year. It would do little good to wipe out the total of the budget which is allocated to the military.

    The GDP is roughly $14.5 trillion. The expected deficit for this fiscal year is around $1.6 trillion, or 11%. That's beyond the basic definition of profligacy; it's closer to raving lunacy.

    While it's all well and good to talk about raising "some" taxes, remember that higher taxes mean less money to hire people, okay? Less investment capital available for business.

    And until you get into the very topmost of incomes, the federal income tax isn't onerous. The bottom 50% of all taxpayers pay in about 4% of all such tax.

    But everybody pays sales taxes and property taxes as well as all the fees which are actually taxes by another name. After you add in FICA, you find that the IRS tax is about a fourth of all taxes paid--which for the middle class accumulates to about 50% of gross income.

    Which is the driving force for both married folks working. Hard for one to support both.
     
  23. rhsgolfer33 thread starter macrumors 6502a

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    Exactly. If you are in finance, banking, and even accounting to an extent, it is possible to find high paying jobs in countries like the Cayman Islands. Its not terribly easy, but if you're good and persistent it can be done.

    It isn't prudent for most people and to a large extent the people shifting wealth over there are the extraordinarily wealthy (as flop noted), since many of the countries don't tax foreign source income.
     
  24. SactoGuy18 macrumors 68030

    SactoGuy18

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    #24
    In my humble opinion, the income tax is a TERRIBLE idea for the following reasons:

    1) It ends up favoring debt financing over cash financing--well, we know how well that went with the stock market meltdown in September 2008!
    2) It ends up discouraging building up personal savings and capital investments in the local economy.
    3) We end up with HUGE problems with income tax evasion, as evidenced in the USA by the rapidly growing underground economy and legal funneling of US$13 TRILLION in American-owned liquid assets to financial institutions beyond US borders.
    4) It encourages local businesses to outsource jobs for income tax avoidance reasons.

    I think we need right now a MASSIVE overhaul of national taxation systems to reward keeping personal savings and capital investments staying in the country. Maybe something along the lines of the FairTax national consumption tax replacement of the income tax (H.R. 25/S. 296) makes a lot of sense, to say the least.
     
  25. Eraserhead macrumors G4

    Eraserhead

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    #25
    Given the following is true:

    And given that other developed nations also have similar rates of income tax this is even more unlikely.
     

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