For three decades we have conducted a
massive economic experiment, testing a theory known as supply-side
economics. The theory goes like this: Lower tax rates will encourage
more investment, which in turn will mean more jobs and greater
prosperity—so much so that tax revenues will go up, despite lower rates.
The late Milton Friedman, the libertarian economist who wanted to shut
down public parks because he considered them socialism, promoted this
strategy. Ronald Reagan embraced Friedman’s ideas and made them into
policy when he was elected president in 1980.
For the past decade,
we have doubled down on this theory of supply-side economics with the
tax cuts sponsored by President George W. Bush in 2001 and 2003, which
President Obama has agreed to continue for two years.
You
would think that whether this grand experiment worked would be settled
after three decades. You would think the practitioners of the dismal
science of economics would look at their demand curves and the data on
incomes and taxes and pronounce a verdict, the way Galileo and
Copernicus did when they showed that geocentrism was a fantasy because
Earth revolves around the sun (known as heliocentrism). But economics is
not like that. It is not like physics with its laws and arithmetic with
its absolute values.
Tax policy is
something the framers left to politics. And in politics, the facts often
matter less than who has the biggest bullhorn.
The Mad Men who once
ran campaigns featuring doctors extolling the health benefits of smoking
are now busy marketing the dogma that tax cuts mean broad prosperity,
no matter what the facts show.
As millions of
Americans prepare to file their annual taxes, they do so in an
environment of media-perpetuated tax myths. Here are a few points about
taxes and the economy that you may not know, to consider as you prepare
to file your taxes. (All figures are inflation-adjusted.)
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Credits: WW CHART — SOURCE: AUTHOR ANALYSIS OF SAEZ & PIKETTY TABLE A6; 2008 DOLLARS
1. Poor Americans do pay taxes.
Gretchen Carlson, the Fox News host, said last year “47
percent of Americans don’t pay any taxes.” John McCain and Sarah Palin
both said similar things during the 2008 campaign about the bottom half
of Americans.
Ari Fleischer, the
former Bush White House spokesman, once said “50 percent of the country
gets benefits without paying for them.”
Actually, they pay lots of taxes—just not lots of federal income taxes.
Data from the Tax Foundation show that in 2008, the average income for the bottom half of taxpayers was $15,300.
This year the first
$9,350 of income is exempt from taxes for singles and $18,700 for
married couples, just slightly more than in 2008. That means millions of
the poor do not make enough to owe income taxes.
But they still pay
plenty of other taxes, including federal payroll taxes. Between gas
taxes, sales taxes, utility taxes and other taxes, no one lives tax-free
in America.
When
it comes to state and local taxes, the poor bear a heavier burden than
the rich in every state except Vermont, the Institute on Taxation and
Economic Policy calculated from official data. In Alabama, for example,
the burden on the poor is more than twice that of the top 1 percent. The
one-fifth of Alabama families making less than $13,000 pay almost 11
percent of their income in state and local taxes, compared with less
than 4 percent for those who make $229,000 or more.
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Credits: WW CHART — SOURCE: MEDICARE TAX DATABASE; CENSUS
2. The wealthiest Americans don’t carry the burden.
This is one of those oft-used canards. Sen. Rand Paul, the
tea party favorite from Kentucky, told David Letterman recently that
“the wealthy do pay most of the taxes in this country.”
The Internet is awash
with statements that the top 1 percent pays, depending on the year, 38
percent or more than 40 percent of taxes.
It’s
true that the top 1 percent of wage earners paid 38 percent of the
federal income taxes in 2008 (the most recent year for which data is
available). But people forget that the income tax is less than half of
federal taxes and only one-fifth of taxes at all levels of government.
Social
Security, Medicare and unemployment insurance taxes (known as payroll
taxes) are paid mostly by the bottom 90 percent of wage earners. That’s
because, once you reach $106,800 of income, you pay no more for Social
Security, though the much smaller Medicare tax applies to all wages.
Warren Buffett pays the exact same amount of Social Security taxes as
someone who earns $106,800.
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Credits: WW CHART — SOURCE: SOCIAL SECURITY MEDICARE TAX DATABASE
3. In fact, the wealthy are paying less taxes.
The Internal Revenue Service issues an annual report on
the 400 highest income-tax payers. In 1961, there were 398 taxpayers who
made $1 million or more, so I compared their income tax burdens from
that year to 2007.
Despite skyrocketing
incomes, the federal tax burden on the richest 400 has been slashed,
thanks to a variety of loopholes, allowable deductions and other tools.
The actual share of their income paid in taxes, according to the IRS, is
16.6 percent. Adding payroll taxes barely nudges that number.
Compare that to the
vast majority of Americans, whose share of their income going to federal
taxes increased from 13.1 percent in 1961 to 22.5 percent in 2007.
(By the way, during
seven of the eight George W. Bush years, the IRS report on the top 400
taxpayers was labeled a state secret, a policy that the Obama
administration overturned almost instantly after his inauguration.)
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Credits: WW CHART — SOURCE: AUTHOR CALCULATIONS FROM IRS
4. Many of the very richest pay no current income taxes at all.
John Paulson, the most successful hedge-fund manager of
all, bet against the mortgage market one year and then bet with Glenn
Beck in the gold market the next. Paulson made himself $9 billion in
fees in just two years. His current tax bill on that $9 billion? Zero.
Congress lets hedge-fund managers earn all they can now and pay their taxes years from now.
In 2007, Congress
debated whether hedge-fund managers should pay the top tax rate that
applies to wages, bonuses and other compensation for their labors, which
is 35 percent. That tax rate starts at about $300,000 of taxable
income—not even pocket change to Paulson, but almost 12 years of gross
pay to the median-wage worker.
The
Republicans and a key Democrat, Sen. Charles Schumer of New York, fought
to keep the tax rate on hedge-fund managers at 15 percent, arguing that
the profits from hedge funds should be considered capital gains, not
ordinary income, which got a lot of attention in the news.
What the news media
missed is that hedge-fund managers don’t even pay 15 percent. At least,
not currently. So long as they leave their money, known as “carried
interest,” in the hedge fund, their taxes are deferred. They only pay
taxes when they cash out, which could be decades from now for younger
managers. How do these hedge-fund managers get money in the meantime? By
borrowing against the carried interest, often at absurdly low
rates—currently about 2 percent.
Lots of other people
live tax-free, too. I have Donald Trump’s tax records for four years
early in his career. He paid no taxes for two of those years. Big
real-estate investors enjoy tax-free living under a 1993 law President
Clinton signed. It lets “professional” real-estate investors use paper
losses like depreciation on their buildings against any cash income,
even if they end up with negative incomes like Trump.
Frank and Jamie
McCourt, who own the Los Angeles Dodgers, have not paid any income taxes
since at least 2004, their divorce case revealed. Yet they spent $45
million one year alone. How? They just borrowed against Dodger ticket
revenue and other assets. To the IRS, they look like paupers.
In
Wisconsin, Terrence Wall, who unsuccessfully sought the Republican
nomination for U.S. Senate in 2010, paid no income taxes on as much as
$14 million of recent income, his disclosure forms showed. Asked about
his living tax-free while working people pay taxes, he had a simple
response: Everyone should pay less.
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Credits: WW CHART — SOURCE: AUTHOR CALCULATIONS FROM IRS
5. And (surprise!) since Reagan, only the wealthy have gained significant income.
The Heritage Foundation, the Cato Institute and similar
conservative marketing organizations tell us relentlessly that lower tax
rates will make us all better off.
“When tax rates are
reduced, the economy’s growth rate improves and living standards
increase,” according to Daniel J. Mitchell, an economist at Heritage
until he joined Cato. He says that supply-side economics is “the simple
notion that lower tax rates will boost work, saving, investment and
entrepreneurship.”
When
Reagan was elected president, the top marginal tax rate (the tax rate
paid on the last dollar of income earned) was 70 percent. He cut it to
50 percent and then 28 percent starting in 1987. It was raised by George
H.W. Bush and Clinton, and then cut by George W. Bush. The top rate is
now 35 percent.
Since 1980, when
Reagan won the presidency promising prosperity through tax cuts, the
average income of the vast majority—the bottom 90 percent of
Americans—has increased a meager $303, or 1 percent. Put another way,
for each dollar people in the vast majority made in 1980, in 2008 their
income was up to $1.01.
Those
at the top did better. The top 1 percent’s average income more than
doubled to $1.1 million, according to an analysis of tax data by
economists Thomas Piketty and Emmanuel Saez. The really rich, the top
one-tenth of 1 percent, each enjoyed almost $4 in 2008 for each dollar
in 1980.
The top 300,000 Americans now enjoy almost as much income as the bottom 150 million, the data show.
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Credits: WW CHART — SOURCE: MARTIN SULLIVAN, TAX ANALYSTS ECONOMIST, FROM DATA AT BEA.GOV
6. When it comes to corporations, the story is much the same—less taxes.
Corporate profits in 2008, the latest year for which data
are available, were $1,830 billion, up almost 12 percent from $1,638.7
billion in 2000. Yet, even though corporate tax rates have not been cut,
corporate income-tax revenues fell to $230 billion from $249 billion—an
8 percent decline, thanks to a number of loopholes. The official 2010
profit numbers are not added up and released by the government, but the
amount paid in corporate taxes is: In 2010 they fell further, to $191
billion—a decline of more than 23 percent compared with 2000.
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Credits: WW CHART — SOURCE: IRS
7. Some corporate tax breaks destroy jobs.
Despite all the noise that America has the world’s
second-highest corporate tax rate, the actual taxes paid by corporations
are falling because of the growing number of loopholes and companies
shifting profits to tax havens like the Cayman Islands.
And
right now America’s corporations are sitting on close to $2 trillion in
cash that is not being used to build factories, create jobs or anything
else, but acts as an insurance policy for managers unwilling to take the
risk of actually building the businesses they are paid so well to run.
That cash hoard, by the way, works out to nearly $13,000 per taxpaying
household.
A corporate tax rate
that is too low actually destroys jobs. That’s because a higher tax rate
encourages businesses (who don’t want to pay taxes) to keep the profits
in the business and reinvest, rather than pull them out as profits and
have to pay high taxes.
The 2004 American
Jobs Creation Act, which passed with bipartisan support, allowed more
than 800 companies to bring profits that were untaxed but overseas back
to the United States. Instead of paying the usual 35 percent tax, the
companies paid just 5.25 percent.
The companies said
bringing the money home—“repatriating” it, they called it—would mean
lots of jobs. Sen. John Ensign, the Nevada Republican, put the figure at
660,000 new jobs.
Pfizer, the drug
company, was the biggest beneficiary. It brought home $37 billion,
saving $11 billion in taxes. Almost immediately it started firing
people. Since the law took effect, Pfizer has let 40,000 workers go. In
all, it appears that at least 100,000 jobs were destroyed.
Now Congressional
Republicans and some Democrats are gearing up again to pass another tax
holiday, promoting a new Jobs Creation Act. It would affect 10 times as
much money as the 2004 law.
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Credits: WW CHART — SOURCE: IRS TABLE 1.4 IN 2008 DOLLARS
8. Republicans like taxes too.
President Reagan signed into law 11 tax increases,
targeted at people down the income ladder. His administration and the
Washington press corps called the increases “revenue enhancers.” Reagan raised Social Security taxes so high that by the end of 2008, the government had collected more than $2 trillion in surplus tax.
George W. Bush signed
a tax increase, too, in 2006, despite his written ironclad pledge never
to raise taxes on anyone. It raised taxes on teenagers by requiring
kids up to age 17, who earned money, to pay taxes at their parents’ tax
rate, which would almost always be higher than the rate they would
otherwise pay. It was a story that ran buried inside The New York Times one Sunday, but nowhere else.
In fact, thanks to Republicans, one in three Americans will pay higher taxes this year than they did last year.
First, some history.
In 2009, President Obama pushed his own tax cut—for the working class.
He persuaded Congress to enact the Making Work Pay Tax Credit. Over the
two years 2009 and 2010, it saved single workers up to $800 and married
heterosexual couples up to $1,600, even if only one spouse worked. The
top 5 percent or so of taxpayers were denied this tax break.
The Obama
administration called it “the biggest middle-class tax cut” ever. Yet
last December the Republicans, poised to regain control of the House of
Representatives, killed Obama’s Making Work Pay Credit while extending
the Bush tax cuts for two more years—a policy Obama agreed to.
By doing so,
Congressional Republican leaders increased taxes on a third of
Americans, virtually all of them the working poor, this year.
As a result, of the
155 million households in the tax system, 51 million will pay an average
of $129 more this year. That is $6.6 billion in higher taxes for the
working poor, the nonpartisan Tax Policy Center estimated.
In
addition, the Republicans changed the rate of workers’ FICA
contributions, which finances half of Social Security. The result:
If you are single and make less than $20,000, or married
and less than $40,000, you lose under this plan. But the top 5 percent,
people who make more than $106,800, will save $2,136 ($4,272 for
two-career couples).
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Credits: WW CHART — SOURCE: MEDICARE TAX DATABASE; CENSUS.GOV
9. Other countries do it better.
We measure our economic progress, and our elected leaders
debate tax policy, in terms of a crude measure known as gross domestic
product. The way the official statistics are put together, each dollar
spent buying solar energy equipment counts the same as each dollar spent
investigating murders.
We do not give any
measure of value to time spent rearing children or growing our own
vegetables or to time off for leisure and community service.
And we do not measure
the economic damage done by shocks, such as losing a job, which means
not only loss of income and depletion of savings, but loss of health
insurance, which a Harvard Medical School study found results in 45,000
unnecessary deaths each year.
Compare this to Germany, one of many countries with a smarter tax system and smarter spending policies.
Germans work less,
make more per hour and get much better parental leave than Americans,
many of whom get no fringe benefits such as health care, pensions or
even a retirement savings plan. By many measures the vast majority live
better in Germany than in America.
To achieve this,
unmarried Germans on average pay 52 percent of their income in taxes.
Americans average 30 percent, according to the Organization for Economic
Cooperation and Development.
At first blush the German tax burden seems horrendous. But in Germany (as well as in Britain, France, Scandinavia,
Canada, Australia and Japan), tax-supported institutions provide many
of the things Americans pay for with after-tax dollars. Buying wholesale
rather than retail saves money.
A proper comparison
would take the 30 percent average tax on American workers and add their
out-of-pocket spending on health care, college tuition and fees for
services, and compare that with taxes that the average German pays. Add
it all up and the combination of tax and personal spending is roughly
equal in both countries, but with a large risk of catastrophic loss in
America, and a tiny risk in Germany.
Americans take on $85
billion of debt each year for higher education, while college is
financed by taxes in Germany and tuition is cheap to free in other
modern countries. While soaring medical costs are a key reason that
since 1980 bankruptcy in America has increased 15 times faster than
population growth, no one in Germany or the rest of the modern world
goes broke because of accident or illness. And child poverty in America
is the highest among modern countries—almost twice the rate in Germany,
which is close to the average of modern countries.
On the corporate tax
side, the Germans encourage reinvestment at home and the outsourcing of
low-value work, like auto assembly, and German rules tightly control
accounting so that profits earned at home cannot be made to appear as
profits earned in tax havens.
Adopting the German system is not the answer for America. But crafting a
tax system that benefits the vast majority, reduces risks, provides
universal health care and focuses on diplomacy rather than militarism
abroad (and at home) would be a lot smarter than what we have now.
Here is a question to
ask yourself: We started down this road with Reagan’s election in 1980
and upped the ante in this century with George W. Bush.
How long does it take
to conclude that a policy has failed to fulfill its promises? And as
you think of that, keep in mind George Washington. When he fell ill his
doctors followed the common wisdom of the era. They cut him and bled him
to remove bad blood. As Washington’s condition grew worse, they bled
him more. And like the mantra of tax cuts for the rich, they kept
applying the same treatment until they killed him.
Luckily we don’t bleed the sick anymore, but we are bleeding our government to death.
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Credits: WW CHART — SOURCES: OMB; CENSUS.GOV; BEA.GOV; CALCULATIONS BY AUTHOR
David Cay Johnston is a columnist for
tax.com and teaches the tax, property and regulatory law of the ancient
world at Syracuse University College of Law and Whitman School of
Management. He has also been called the “de facto chief tax enforcement
officer of the United States” because his reporting in The New York Times
shut down many tax dodges and schemes, just two of them valued by
Congress at $260 billion. Johnston received a 2001 Pulitzer Prize for
exposing tax loopholes and inequities. He wrote two bestsellers on
taxes, Perfectly Legal and Free Lunch. Later this year, Johnston will be out with a new book, The Fine Print, revealing how big business, with help from politicians, abuses plain English to rob you blind.
There is a lot of food for thought in this article but it gets off to a bad start when it attributes supply-side economics to Milton Friedman. Friedman shared many of the policy objectives of supply-siders but he never accepted their economic theory and in particular the notion that tax cuts necessarily produce higher tax revenues.
In fact, had Friedman believed that, he would have been disappointed since he personally believed we needed smaller government that spends less for both political and economic reasons. He would have been appalled to think tax cuts would fuel larger and larger government spending.
So, you picked a minor point of the article--a passing mention of Milton Friedman--and wrote two paragraphs about it? Good grief. If you're going to that trouble (and not making a thinly veiled attempt at self-marketing), why not comment on something substantive? Or offer an opinion?
The article nails the problem that's hollowing out the middle class. The only thing it doesn't do is make it alarming enough--because the repercussions are quite likely going to permanently disintegrate the house of cards that the US economy always has been--one based on massive greed, excessive consumption, and resource extraction.
This article assumes "cause and effect" where there is none and severely misrepresents Friedman. First, Friedman was a staunch proponent of small government. He ALWAYS advocated for lower taxes IN CONJUNCTION with reduced government spending, thereby leaving more money with the wage earners, rich and poor alike. That gave people more incentive to work for and create businesses and less opportunity to ride gov't handouts.
The author points out that Clinton raised taxes and the economy got better, while Reagan and Bush lowered taxes and things got worse. This turns a blind eye to the fact that Reagan and Bush (and Obama) all dramatically increased government spending, while Clinton actually CUT government spending and balanced the budget. THAT is the greater lesson that really we all should know intuitively; that living within your means leads to prosperity and living on debt may make you look rich short term, but puts you in the poor house soon enough.
If you're trying to lose weight and you start exercising but simultaneously increase your diet to 10,000 daily calories of cake, ice cream and pizza then you're still going to get fatter. You could argue (much like the author above) that this is proof that exercise obviously doesn't lead to weight loss, but it would be an equally flawed analysis and conclusion.
No, no, no. By libertarian's logic, the period from 1945 to 1970 should have been an economic disaster: we spent money on building highways, airports, the space pogram, the GI Bill, the Marshall Plan, the Cold War, and more. Taxes on the highest brackets were set at 91%. According to libertarians, we must have done everththing wrong, yet after World War Two (by the the way, the largest public works project in American History that also ended unemployment), we saw the longest and most sustained period of growth and prosperity in Amrericcan History--and it extended beyond the wealthy to people in all classes. Moreover, the debt was reduced considerably by 1974, in spite of it all. There is little historical rhyme or reason to link government spending to economic fortunes. 1835 is the only year ever that we have had no national debt in the US. Yet a year later, the Panic of 1837 plunged the country into a recession. The point: the recession might not have been CAUSED by being in the black, but by the same token, it did not prevent it either. Austerity, to all you libertarians, is a policy of barking up the wrong tree! Get with the picture: a laissez-faire system is great for generating profits for the few, but without rules and balance, it won't achieve anything else, and in the long run, it will lead to the decay of the American Republic.
Doesnt it seem innately insane that Gates can make $3 billion in dividens in one year and only have to pay 16% on it while seniors and kids suffer?
From 1945 to 1970 we also had no foreign competitors. We could get away with unionized factory workers producing inferior products. But once Germany, Japan, etc. got back on their feet, we had to compete in the global marketplace, and the old way of business wasn't sustainable.
@craig: there are more inferior products on the market now than before economic globalization began. I can name all kinds of products that I've found to be inferior today compared to 30 years ago. And, there are many other developed countries that have more union workes and higher minimum wages and are doing no worse than us and in some cases better (when you count US unemployment the same way EU countries count unemployment, for example, it's surprising where we really stand).
One person said
"From 1945 to 1970 we also had no foreign competitors. We could get away with unionized factory workers producing inferior products. But once Germany, Japan, etc. got back on their feet, we had to compete in the global marketplace, and the old way of business wasn't sustainable."
You need to know that Trade Union is very strong in Germany. About 25% of all persons belong to a Trade Union.
After the war taxes in Germany were changes for corporation from 35 - 65% to 50% For people the most wealthy still paid 95% but the level at which this rate applied changed from DM6,000 to over DM250,000. To explain, a man earning DM2,500 in 1948 paid 85% tax, in 1950 he paid 18%. This caused more demand for goods which was one part of the German Economic Miracle as industrial production increased by 50% in six months.
This Article is just a lot of government propaganda!
@Libertarian: "This turns a blind eye to the fact that Reagan and Bush (and Obama) all dramatically increased government spending..."
I like how everyone throws Obama into this equation because he (correctly) put the Wars and Bush Tax Cuts on the books.
Give me a break already.
@erik B
bill gates is not the guy you want to pick as an example. he has gone on record as saying that people as rich as him should donate more than a quarter of their profits to charity. which hes done.
http://en.wikipedia.org/wiki/Bill_%26_Melinda_Gates_Foundation
Using percentages when it suits your argument and switching to hard figures when the percentages don't support your position is disingenuous. Lying with statistics!
Friedman is a red herring. In fact, most of the data cited in the above article are red herrings. The author jumps between including and excluding non-taxpayers, to fit whatever point he is trying to make. Actually, the reason why most of the numbers cited above make no sense, is because both parties have created a huge and growing "entitlement class" that don't work, because they don't want to work. Non-taxpayers are increasing, not because of taxes, but because they have learned that if they don't work, the government will take care of them.
To further spin his argument, the author found it necessary to include things like Social Security and unemployment insurance (payroll tax), in order to inflate the numbers. FACT: Social Security is YOUR money. It's YOUR retirement funds. It's NOT a tax. Similarly, unemployment insurance is money that is there to insure YOU against unemployment. Again, it's NOT a tax.
In fact, the 47% of Americans who pay no tax, pay very little in the way of other taxes, since most of their spending is on cost-of-living items and many of those items are bought used. I know of no state that taxes food. In the end, those who pay no income tax pay some trickle down corporate taxes on food, rent and other cost-of-living items, though that amount is nominal. In fact food stamps and other government give-aways offsets all or almost all of any trickle-down tax that they might pay. According to the IRS, even the bottom 50% of real taxpayers only paid 2.7% of all personal income tax collected in 2008. They also pay very little in other trickle-down taxes.
By contrast, the wealthiest 1% in 2008, earned 20% of the income, while they paid over 38% of the total personal income tax burden. That's almost double their share, based on income. Since almost half of Americans pay no tax that means that roughly one-half percent of Americans pay almost 40% of the income tax load, amounting to double their share, while almost half of Americans pay nothing or even get rebates for taxes that they never paid.
The flaws in the above article are far too many to enumerate here, so I'll simply cite one fact that trumps everything else.
According to 7 surveys conducted by Zogby International and published in 2008, "by a moderate estimate" (to use their words), more than 3,000,000 Americans "relocate" outside the USA every year. So why is this fact important? Ask yourself this question. "How many of that 3,000,000 expats a year are poor?" Then ask yourself why these people are leaving and what happens to our tax base and jobs, when they do. Think about it...
How does 1% of the population (3e6) trump everything?
None of you know what your talking about, the simple fact is this country is a joke. You put a couple hundred people in a room that think they know whats best and a hundred buisness owners in each one of there pockets and presto, you have politics. You want a debate, talk to your neighbor about your other nieghbor. This is the american way, a bunch of darn pansies. From the guy that has enough brains to build your houses, fix your cars, slap together a website or a mobile app, that pays more taxs than most of you "this article says so", that has a family that he feels he needs to move to india where the econemy is good, and has to listen to retards like you debate over this crap.
@John G.
"I know of no state that taxes food. "
I live in MO, where we pay sales tax on everything. Food, Cloths, ect.
"I know of no state that taxes food."
Six states tax groceries at lower rates than other goods; they are Illinois, Missouri, Tennessee, Virginia, and West Virginia.
Six states — Hawaii, Idaho, Kansas, Oklahoma, South Dakota, and Wyoming — tax groceries fully .
Four states continue to apply their sales tax fully to food purchased for home consumption without providing any offsetting relief for low- and moderate-income families. They are Alabama, Arkansas, Mississippi, South Carolina.
John G - I am almost positive most states charge taxes on food. I know for a fact the only one I know of that DOES NOT charge sales taxes on food is New Jersey.
"Trickle down corporate taxes on food?" That is one of the most ridiculous lines I have ever read. Food supply is much more elastic than food demand - this means that CONSUMSERS pay the largest portion of the tax burden on those purchases.
Tax burden is not dependent on how the tax is levied, but on who in the market can react most to the change. The truth is that consumers have a much harder time reacting on most items than the producers do, so the producers can offset a portion of their burden by charging higher prices for the goods...because guess what? We will have to buy it anyway.
The only items that are less elastic for suppliers is luxury items - jewelry etc. The supply of diamonds is not going to change over night, but if there is a high tax on them, buyers won't pay the extra cost.
Libertarian - as the article mentioned, higher taxes can also be an incentive to invest in your business. This is due to the fact that companies do not have to pay taxes on revenue, which includes anythng you put back in the business or to your employees pay. HIgher corporate tax rate = more reinvestment in the business and higher wages for regular workers. The Laffer curve doesn't start going back down for most products until you have like an 80% plus tax rate.
There is no cause and effect assumed. There is an effect stated, though, that lower corporate tax rates, and lower tax rates on the affluent have actually CAUSED revenue to decrease compared to previous years. That is absolutely a causal relationship. The article never said anything to the effect of "things got better under Clinton, and worse under the others." You are extrapolating what you want to hear, because then you would actually have a valid argument.
This is not to disagree with your point about living within your means, but it is hard to live within your means when people are intentionally removing your avenue of revenue. "Starve the beast..." but first we have to create it (ie, the debt going up 185% under Reagan).
Craig - the last time I wanted an American product was generally when it was made under union labor. Production factories in Japan are worker/union owned - this gives workers an incentive to make high quality things. If you give a worker a piece of the pie and then leave them to their own devices, they will work much harder than if you simply give them an offer of reward for possible quality labor. People like to self-manage, for the most part, and I have known management to hinder progress in businesses as much or more than workers. If you aren't smarter than half the people above you, then you probably aren't getting anywhere.
The article is not arguing about whether we need to cut spending - that is a given from almost all sides of the aisle - but that revenue is actually going down when adjusted for inflation and as a share of GDP.
John G - if unemployment insurance is not part of taxes, then why do I not ever get that back? I have never taken unemployment, so to me, that is a tax. SS is a retirement fund built out of...taxes. Payroll taxes are still tax. We get almost ALL of our income taxes back as well. Roads, military, education etc. By your logic, no taxes are taxes becuase they pay for things. Non-taxpayers were not increasing until the recession, they were actually slowing going away - this was due to the EITC (Earned income tax credit), which puts a stronger incentive on work instead of welfare. You are wrong about that 50% of taxpayers nonsense, the poorest quintile (bottom 20%) only had about a 2.7% FEDERAL INCOME TAX liability. You are completely mistaken on the rest of their tax burden. They have a higher burden than I do on things like excise and sales taxes, because I actually make enough to be able to save some money.
"You Guys Talk Too Much" - I don't think they will let you into India until you can spell economy.
@ Jack, reasonable criticism.
Milton Friedman was intended as a symbol for the Chicago School (which I attended on a fellowship in 1973), supply side thinking and the whole shift in which his work and especially in the popular mind his NYTimes magazine article on duty to shareholders only and his PBS series played a huge role in tax policy, hence my use of the verb "promote."
One need not adopt every scripture to accept the overall canon.
"One need not adopt every scripture to accept the overall canon."
Beautifully put, sir.
Amen...and Amen..
Tragic but true: No politician ever lost an election by under-estimating the wisdom of American voters. All you have to do is tell enough lies, loudly enough, demonize anyone who disagrees with the lunatic fringe of the right, and talk about Jesus now and then, and the masses will screw themselves and their families to support you.
This Article is just a lot of anti-government propoganda!
"both parties have created a huge and growing "entitlement class" that don't work, because they don't want to work. Non-taxpayers are increasing, not because of taxes, but because they have learned that if they don't work, the government will take care of them."
Could you please post some facts about these plans because I cannot seem to find any way of having the government pay my way. This is typical rhetorical bs with no basis in fact.
I apologize if my comment does not appear under the correct person there are no reply buttons for most comments on my screen for some reason.
Going on and on about the non-taxpayers does nothing to justify the reduction in federal tax revenue. They don't have money to contribute, even if they are leeching off the system (if you really believe that). The reduction in revenue is crippling the government, and as pointed out in the article, the lowered capital gains rates have led to higher profit taking and less reinvestment, which is what is needed to "create jobs." This is one reason the economy is still stuck in neutral, and indeed that revenues have fallen. The states are all going broke (trickle-down ecnonomics for sure) and revenues must come from somewhere for basic infrastructure and needs, whether fire departments, schools, or the national guard. And we can't get it from the 47% who don't pay taxes, because the reason they don't is they don't have the income to speak of!!
Virginia taxes food. Wealthy people are able to sen thei kids to private schools and colleges and write off the contributions that get them there. They are able to enjoy the Galas and other perks of the symphony because of the ciontributions they make and the seats they can afford. Wealthy people for the most part do not buy American goods and services. I am not against people being wealthy, but I do feel they should pay their fair share to support the services we all use- roads, education, the poor. We cannot have a "Great Society" unless our children and our old people are safe and taken care of. Ron Paul's "death squads" are wores then those of which Obama was accused.
Yes, Jack, he wanted to privatized everything that is/was owned by the public and thereby increasing costs to public just like what has been done over the last 30 years and on steriods under Bush. The cost of everything has gone up due to these policies. Mercenaries fighting wars at $80,000 and up and we paid our soldiers that we so support and honor a measley what? $2000 a month? What is it now Jack? Privatization has brought us higher cost of living when we used to determine projects in the hundred of thousands, then millions and now billions and trillions. Milton Friedman and his policies are destroyers of nations and people of those nations and we better wake up to that soon.
Sorry but taxes are way to high on everybody, period. how stupid to believe that we need to tax the rich more. only morons with a walnut for a brain can come up with such stupidity.
You tax the rich more because they use more resources. The. End.
If they are using more resources they are indeed paying more in taxes. Sales, use, etc...
Brilliant piece, Mr. Johnston, debunking one of our nation's biggest and most insidious myths. I've nominated you as my pick for "Truth Digger of the Week" at Truthdig.com. For what it's worth, you deserve it!
Roger O: Why is it that it's always those who can't spell, punctuate or even capitalize reliably that are quickest to call others morons? Why do you have to immediately stoop to aggressive insults? Are you THAT afraid of debate?
The subheads alone would be an education for 90% of the people in America. It's a real (and possibly insurmountable) problem: woeful ignorance, often coupled with indifference as well.
And then there's political reality, e.g., Senator Schumer of New York, a nominal liberal, stanchly defending one of the most egregious tax breaks on the books.
And then there's the media, even the so-called liberal media, which (in the name of fairness) leaves huge whoppers on the table without ever challenging either the whoppers or their issuers.
And then there's more political reality. Except for one brief shining hour (the passage of healthcare), the party that was routed in 2008 has essentially controlled everything the government has done (or not done) ever since.
So it goes.
Federal taxes are lower now than at any point in the last 80 years.
If you want to have a modern society--one with roads, and disease control, and a educated population--you need government. The US spends less than any other developed country than Japan.
* "too" high
* Capitalize the "h", the one after the period.
* Capitalize the "o", the oe after the next period.
Don't call people stupid, or morons. Coming from you, that's quite an insult.
staunchly, not stanchly...
Talk about stupidity!!! You, Roger O. are the stupid one. You must not have read this article. Under Eisenhower everyone, and I mean everyone paid their fair share of taxes. We need to return to the Ike years and get undone what Reagan and the Bush's did to this country. You are a fool if you believe that the rich are paying their fair share of taxes.
Maybe we should continue to give tax breaks to the wealthest people hoping they create more jobs. You know the trickle down effect. That seems to be working right? Ha. Remind me why they deserve to keep all their money while the poor still pay taxes? Taxes are not way too high check out what other countries pay in taxes. Belgium, Canada, Sweden all pay about 50-60% We actually have one of the lowest tax rates.
The rich also enjoy the greatest benefits of our society.
Roger.o: the overall tax burden on Americans of all income levels is at it's lowest since the federal income tax was put in place in 1913. It may not "feel" like it to you, but that is the truth...
I need to know the consensus of opinion as to what's more important to address: taxes, or employment; to my thinknig, they can't be addressed simultaniously. I write altacocka.com
They use more resources? This is specious. Everyone is protected by the military equally, has medicine regulated by the FDA equally, and gets equal questionable benefit from banana slug mating habits research.
What's unequal is gas taxes- as they should be. You use more, you pay more. Likewise property tax- a 5 acre yard and big house pays more than a 2 bedroom condo.
Roger O. - you are the voice of reason! The rich make more money, spend more money and employ more people. They're paying lots of taxes already. Probably more than most in those areas.
<i>" how stupid to believe that we need to tax the rich more. only morons with a walnut for a brain can come up with such stupidity. "</i>
Or people who have a nodding acquaintance with the history of the past 90 years...
The rich get proportionally more benefit from the state and pay proportionally less tax. It is ever thus while people in the US will remain so enthusiastic to cut off their own noses to spite someone else's face.
I work on Sales and Use tax every day.
In most states Sales and Use tax is not charged on services. The rich (and corporations) do not pay tax for most of the services they are able to enjoy. And they do enjoy many services.
Gardening, maids, pool maintenance, child care, house cleaning, etc., are all enjoyed tax free if you can afford it. The workers are paid in cash at a very low hourly rate. Everybody wins, right? Try to live on $8 an hour, even without the income taxes.
The rich do not pay tax for their illegal workers. Yet all we talk about is the terrible people who cross our borders in hope of a better life. Why would they do this if our greedy rich did not employ them? Who is the criminal here? I say both. Lets do something about both sides of this criminal activity. Try to keep it real.
I've seen roads built by the government that benefited only the corporation that requested or demanded it. This particular corporation built a new office building and needed the road to get their employees to work. The government paid for the road. Why? There are plenty of places to build an office building that already has access to a road. Corporate welfare.
The rich can afford attorneys and accountants to find all the tax loopholes. If multi-billion dollar companies that make billions in revenue do not pay tax, and in some cases, receive a refund, the tax code is obviously broken. Can anybody honestly argue this point?
The rich know I am correct. But they will never admit to it because their greed matters more to them than all the harm they cause. If they can tell themselves that nobody is hurt and nobody is dying because of this rigged economy they continue to promote, it's because their greed is all that matters to them. I cannot see them as having a conscience or a real sense of right or wrong. Am I wrong? I really can't understand that kind of thinking.
All the people out there who are uninformed because the only information they learn is from the TV, are helping the rich to continue owning the government. Their indifference and lack of interest is taking us all down just as much as the greedy rich.
I should say that not all the rich are greedy. But it is the greedy rich who control our government and thus, our American life. The greedy rich use talking points to control the ignorant and indifferent, and get them to vote for their own demise. So many suffer and so many really don't know why.
Ignorance and greed have been destroying this country for years.
@Roger O.: interesting how you (and some others) ignore the very valid point that tax policy has decimated the middle class in this country. Furthermore, you hurl insults rather than even attempt to have a constructive, adult discussion. That only shows that you have no rational response. Apparently, you and some others think it's a good thing that the middle class is disappearing.
Roger's not afraid of debate, just incapable. He lacks the brainpower.
"If you want to have a modern society--one with roads, and disease control, and a educated population--you need government."
uh, no. Most roads in Switzerland, the state with the highest per capita assets and also leads in many other measures of seccsess, are privately owned and maintained. Neighborhood routes are maintained by the residents, city streets by the companies that profit from the business that having roads brings them, and free ways by tolls...... as far as dieses control... just compare Underwriters Labortories to any regulatory agency in the US, I guarentee you that the UL will univerally be less corrupt and more compentent..... Educated populace? You're kidding right? State schools are made to make childern stupid and docile and though school might do ohkayish for teaching math and science, history is nothing but a lie.......
Milton Friedman has been wildly discredited to anyone with half a brain. You can raise taxes to 100%, you can cut every Federal budget down to zero, including defense, and you won't even come close to paying off the quadrillion in derivatives the Wall Street banking syndicate has managed to get governments to sign on to through fraud. Until we say NO to the banksters our fate is sealed.
Inflation is the most detrimental tax on the poor and middle class. We should increase taxes on the top 3%, stop corporate welfare, stop feeding the military industrial complex, audit the fed, and cut government spending or at the very least stop increasing it. Doing these five things would bring us back to a vibrant economy. Doing just one of the five things will help, but won't solve our problems.
BTW>Simply connecting the dots of tax benefits to the rich/corporations to our economic downturn doesn't cut it. It's a smorgasbord of reasons. The five I mentioned are at the top of the list.
Inflation is the most detrimental tax on the poor and middle class. We should increase taxes on the top 3%, stop corporate welfare, stop feeding the military industrial complex, audit the fed, and cut government spending or at the very least stop increasing it. Doing these five things would bring us back to a vibrant economy. Doing just one of the five things will help, but won't solve our problems.
BTW>Simply connecting the dots of tax benefits to the rich/corporations to our economic downturn doesn't cut it. It's a smorgasbord of reasons. The five I mentioned are at the top of the list.
"Trickle down" economics was misnamed. It's actually "trickle on" economics.
Finally someone makes sense. Employment not taxes is the concern. As I see it, if we continue to go down the Regan/Bush policy road, the US will be a third world user economy in 50-100 years. Fortunately, I'll be dead.
Thank you, Spindles. A voice crying out in the wilderness.
Yes, Spindle you NAILED it and I thank you.
USuncut.org is trying very hard for people to DO something about the issue. We have a steep learning curve going on; it's not a flash in the pan. WATCH.
I have to somewhat agree. I have been mentally and physically disabled all of my life and it has been a major struggle. Still, I managed to succeed in work for over 20 years (although for many of those years I was feeding the greedy corporate claws against my will) and managed to study in and out of college for a long long time. But what people MUST understand before anything is: The government DOES NOT run the country! They are simply puppets for the true rulers...the corporate and banking elite...also the true definition of 'fascism'. I worked hard, paid into the system for over two decades, helped the needy as well as trying to deal with my severe disabilities and finally had to apply for social security myself. It is now Dec. 2011 and my first claim after almost 6 years is still in appeal. The only reason I got it last year was because my lawyer advised me to apply a second claim which they automatically granted me. The monthly payment was not much...$990 per month, but with $200 mo. in food stamps and all my medical paid by medicaid except $3 copays on scripts (I take 13 different meds a day), Indiana FSSA informed me because I got $990 per month in disability, they reduced my food stamps from $200 per month to $50 per month and put a monthly premium (spend down) on my medical of $300 per month before they will help. This kicks in Jan. 1st..a few weeks. With those cuts, I cannot afford my meds (many of which I depend on to survive and semi-function) so I either have to go off them completely and most likely not live to see spring but have a roof over my head, or live on the street but be able to afford my meds...and still won't survive for long. With these cuts because of my disability kicking in, it leaves me with $550 per month to live on. My rent, electricity, gas, internet, renter's insurance alone is about $525 per month which means that will leave me with $25 per month for toiletries, food, transportation, soap, laundry money, shampoo, etc. I WILL NOT SURVIVE! And I do not live in luxury. I have a small 500 sq. ft. apt., I have no phone, no cable, no A/C, no Heat, etc...just the bare minimum as it is. This is what I get for being severely disabled yet put in well over 20 years of my life working for big corporations...the elite, etc. FUCK THE U.S.A!!!!!!!!