January 20, 2012

Should we be outraged at how little Mitt Romney (like Warren Buffet) pays in taxes?

The Wall Street Journal notes that Romney (like Warren Buffet) makes his money from investments, so the income he receives has already been taxed "at the corporate tax rate of 35%." The 15% tax he pays sounds unfairly low, compared to the tax rate on wages and salaries, but it's not low at all if you see it as a second tax.
All income from businesses is eventually passed through to the owners, so to ignore business taxes creates a statistical illusion that makes it appear that the rich pay less than they really do. By this logic, if the corporate tax rate were raised to, say, 60% from today's 35% and the dividend and capital gains tax were cut to zero, it would appear that business owners were getting away with paying no federal tax at all.

This all-too-conveniently confuses the incidence of a tax with the burden of a tax. The marginal tax rate on every additional dollar of capital gains and dividend income from corporate profits can reach as high as 44.75% at the federal level (assuming a company pays the 35% top corporate rate), not 15%....

[T]he average effective tax rate on the richest 1% is already twice as high as that of the middle class.
But Romney needs to be able to explain this persuasively to the American people. He needs to be able to explain this while his opponents are gleefully screeching "15%!" It's a good test of his ability to be persuasive, as a good candidate must be. So step up and take the test, Mitt!

233 comments:

1 – 200 of 233   Newer›   Newest»
NYTNewYorker said...

The race card has failed so now they'll try the rich card.

The dems can't run on Obamas record so it's class warfare.

Chip S. said...

This all-too-conveniently confuses the incidence of a tax with the burden of a tax.

Disappointingly sloppy writing by the WSJ. The correct distinction is between "statutory incidence" and "economic incidence." The latter is what determines the burden of a tax.

David said...

So far Mitt is losing the teaching opportunity. That does not bode well.

Look at Obama's 2009 return. He had $5 million of "business income" from book sales. His overall effective tax rate was about 25%. But because he was a sole proprietor, there was no corporate tax.

If you look at the money Mitt is getting, the overall tax on those profits counting corporate and individual taxes is likely higher than on Obama's income.

Lisa said...

Why aren't wages considered a second tax then? Because those come from businesses income as well. Of course, that pretends that businesses actually pay their fair share of taxes.

Why is it reasonable that income from moving money around is taxed at less than income from working hard?

DADvocate said...

How much does Mitt pay in actual dollars, not the percentage?

Has he used insider information on pending legislation to make money, a la Pelosi and Reid?

Has he done anything illegal at all?

How much money does Ed Schultz make? What does he pay in taxes? How big is his house? What does he weigh? How many starving children in Africa could you feed if he didn't eat so much?

Tank said...

First we were supposed to be outraged that Romney committed Capitalism - OmiGod.

Now we're supposed to be outraged because he is complying with the tax code, as written.

The outrage is the opposite. Rich people, in general, pay way more than their fair share of taxes, while almost 50% pay no income tax at all (they do make partial contributions to "their" (LOL) own Social Security (well, when we're not robbing it to have a political "holiday").

This country is doomed.

DEAD COUNTRY WALKING.

36fsfiend said...

The article states that dividends and capital gains are taxed twice: once at the corporate tax rate of 35%, then again at a 15% tax rate when it is passed through to the investor.

As an investor, I don’t see that 35%. I only see the 15%.

If I purchase a car, I’m taxed on that transaction. If, I turn around and resell that car, it will be taxed again, but I will not incur that tax, the buyer will. Same thing. Every time money changes hands there is a tax.

Hoosier Daddy said...

According to the IRS, Mitt is still paying a higher percentage of income tax than about 50% of the country.

TosaGuy said...

"Why is it reasonable that income from moving money around is taxed at less than income from working hard?"

Because that money can be lost. There is no such thing as a guarantee that an investment will work out. Raise the cap gains taxes high enough and fewer people will accept the risk of the investment. Income is taxed higher because we let politicians say it should be higher. It is also taxed higher because income is guaranteed (provided you have a job). By and large, one does not risk not getting paid if they do the work.

Scott M said...

But Romney needs to be able to explain this persuasively to the American people.

This is the key. He has not done well with this question so far and needs someone to talk it out with him so he feels he can confidently explain, in as few phrases as possible, what's going on.

Perhaps another layer of disinfectant sunlight will be added to the already volatile discourse in this country.

pm317 said...

I agree Romney needs to explain all that. I think where he is stuck is in letting people KNOW how wealthy he is. He does not want to do that looks like -- there is a part of him that feels guilty (I think or at least conflicted) in these troubled times to show how well off he is and he knows that the Dems will make a big deal of it (and even his repub rivals are making hay out of it). He is avoiding the issue for now.

Chip S. said...

This WSJ piece is a total mess.

Compare two possible investments Mitt might make: shares in a corporation or municipal bonds. On the first one he "pays" 15% on top of 35%, while on the second one he "pays" no federal taxes at all.

But unless he's a total idiot, he knows this ahead of time, and so is willing to accept a lower pre-tax return on the munis than on the corp. shares. That lower return is as much of a "burden" on Mitt as are the checks sent by the corp. and by Mitt to the Treasury to make actual tax payments on the corporate income source.

The burden of the corp. tax is spread around to all types of capital income, not just corporate income.

Even worse, in some circumstances part of that burden could ultimately fall on workers in ways that they would never discern.

It's folly to talk about what a single individual's tax burden is, solely on the basis of that person's cash flows.

Peter said...

The outrage is that capital gains are not adjusted for inflation.

Why should I pay a tax if I sell an asset and it's inflation-adjusted price is the same or less than what I paid for it?

NYTNewYorker said...

The TOP 1% pay 39%, up 2% from 2000 when President Bush took office.

The TOP 50% pay 97% of all income taxes.

www.irs.gov/pub/irs-soi/05in05tr.xls


No matter how many times these facts are spoken, they never stick.

LilyBart said...

As an investor, I don’t see that 35%. I only see the 15%

As an investor (shareholder/owner), your distribution is calculated after the corporate tax. Most owners realized this - even if you, personally, don't realize it.

Some people view their tax refunds as 'found money' too. Which is silly - its a reimbursement of an overpayment of tax.

Larvell said...

Why aren't wages considered a second tax then? Because those come from businesses income as well.

No, wages (like other business expenses) are deducted from a business's gross revenues to arrive at taxable income. So corporate income taxes have not been paid on those wages.

Dan in Philly said...

I'm outraged!!!! OK, I jealous, but still...

Seriously, I remember well when the liaberal news made a big deal about Obama's use of texting and email when McCain didn't, even going so far as to ask young people "Do you think we should have a president who uses texting or one who doesn't?" What's the kid gonna say?

Now of course they'll make an issue where Romney is weak, namely that he's rich, which wasn't an issue at all in the last election, for some reason I have yet to fathom.

I'm not too worried. Those who wouldn't vote for Romney because he's too rich aren't exactly low fruit, anyway.

NYTNewYorker said...

"...there is a part of him that feels guilty"

Last night Mitt said that he's been successful and doesn't apologize for that.

Hoosier Daddy said...

"... But Romney needs to be able to explain this persuasively to the American people..."

Keep in mind that a good chunk of people just have an expectation that the rich should pay more just because they can afford to. Telling someone that I'm actually paying tax on my income twice falls on deaf ears because, so what, look at all the money you have!

To the average person taxing someone making a million a year at say, 50% doesn't seem unreasonable because he still gets $500K and that's a lot of money!!

Chip S. said...

Why should I pay a tax if I sell an asset and it's inflation-adjusted price is the same or less than what I paid for it?

You shouldn't, as long as you also declare the real capital gain you realized from inflation if you financed the purchase of that asset with a fixed-rate loan.

Michael said...

Mitt was answering what his effective tax rate was, and he responded with 15%.

"The average effective federal tax rate for American taxpayers is 11%, according to an analysis of 2009 IRS data by the Tax Foundation, a non-profit research organization. For individuals with adjusted gross income of $50,000 or less, the average effective tax rate is less than 5%, according to the Tax Foundation."

TWM said...

Short answer, nope.

I really don't think people are buying this crap anymore. Except the 20% that are liberals and that's because they love crap.

rhhardin said...

He can't explain it because he doesn't understand it.

Paul Zrimsek said...

Why aren't wages considered a second tax then?

Possibly because it's not paid to a government and therefore is not a tax at all?

rhhardin said...

The tax on dividends is the same as capital gains, at least recently, because the tax code should be indifferent to whether a corporation pays out after-tax profit or reinvests it in the company.

If the former, it shows up as a dividend.

If the latter, it shows up as a capital gain.

Hoosier Daddy said...

"... Now of course they'll make an issue where Romney is weak, namely that he's rich, which wasn't an issue at all in the last election, for some reason I have yet to fathom..."

It wasn't an issue cause he wasn't the nominee. If this is all they can come up with, that he was a successful businessman who became wealthy then Mitt has to be the cleanest candidate in 20 years.

36fsfiend said...

LilyBart said...

"As an investor (shareholder/owner), your distribution is calculated after the corporate tax. Most owners realized this - even if you, personally, don't realize it."

Yes. The corporation pays the 35%. I can't say that I'm paying 35% plus 15%. I only pay the 15%.

Tank said...

Hoos

If you're paying $1.00 per year in income taxes, you're paying more than about 47% of all Americans.

Maybe, once you start to believe that all of Romney's money is available for the gov't to tax (steal) and give to other people, you're on a slippery slope. Who is to say what is the right amount? Hey, he can live on $5M comfortably for the rest of his life, why not spread the rest of his wealth around?

Why not? If you can take 20, 30, 40, 50% of his income or more, why not his assets, why not your 401K?

It's all coming down the line.

pm317 said...

NYTNewYorker said...
------------

Yeah, I saw that last night -- he can't avoid the issue any longer. I think the first time he shared that that it was all his own and that he didn't inherit it. I didn't know that which makes me think many other don't either. Why doesn't he share his bio?

I agree with your other comment -- it is not the race card but the rich card and that is also the reason why Romney is avoiding it.

Scott M said...

He can't explain it because he doesn't understand it.

I seriously doubt that. As was said above, I think he's more concerned (incorrectly, but that's just me) with appearances.

Ann Althouse said...

"Why aren't wages considered a second tax then? Because those come from businesses income as well. Of course, that pretends that businesses actually pay their fair share of taxes."

Wages are a business expense! They're deducted before you figure the tax.

This question shows the problem. People don't understand tax and so they are vulnerable to demagogic arguments.

Mitt needs to figure out how to explain this stuff to voters. It's really elementary to someone in business, and he ought to be able to package that 15% number in a cogent discussion of taxing.

pm317 said...

Blogger NYTNewYorker said...

The race card has failed so now they'll try the rich card.
-----------

It has been said that Obama and his people were getting ready for Romney as the nominee. So they have been planning this for a while now. All the OWS 99%/1% is an offshoot of their strategy. Romney instead of addressing that head on is running away from it. Looks like Romney's campaign is too careful and too calculating for their own good.

TosaGuy said...

When I discuss such issues with people, I ask them their actual tax rate (after deductions, etc)......No can answer that question.

This wouldn't be an issue if people were economically literate about their own finances.

MayBee said...

Our country is in serious trouble, and Obama has us bickering about whether Romney should release his tax returns and whether a man who likely paid millions in taxes has paid his fair share.

You know how much Obama values our tax money? He uses it to fly AF1 down to Florida to have a photo op while closing down parts of Disney World. I bet he spent the equivalent of my family's federal tax bill just doing that.

Larvell said...

As an investor, I don’t see that 35%. I only see the 15%.

If you don't see it, it's only because you're not looking. As in investor, you have a proportionate interest in the earnings of the corporation, and those earnings are reduced by the amount of taxes paid to the government. So regardless of who writes the check to the taxman, it is coming out of your money.

dmoelling said...

Mitt's problem is that he's geared to Massachusetts voters. He constitutionally is incapable of a full fledged defense of capitalism. In Mass you can make piles of money (like Elizabeth Warren) but it must be cloaked in proper genteel robes.

Although he won the NH primary, he's not a "Live Free or Die" guy

MikeinAppalachia said...

36fsfiend-
try it this way: You are an owner/shareholder in a corporation. The corporation made a profit of which your pre-tax share is $100. You are going to take your share as a dividend. The corporation pays $35 in taxes on your $100 and sends you a check for the remaining $65. You pay an additional tax of 15% on that and you have $55.25 left. Your tax rate was 44.75%

Widmerpool said...

Wages are a business expense and are therefore deductible. In other word, a business pays them with pre-tax dollars (unlike dividends).

Dose of Sanity said...

It's quite a game to argue it's taxed twice.

First, most corporations that we are talking about (with investors) don't pay 35%. In fact, a large majority pay 0%.

Secondly, money is often taxed when it switches hands. If you hire a helper at your house, that money is "taxed twice" (your wages and their wages), right? (You can argue it's consumption, but that doesn't help you distinguish between the two situations).

Thirdly, the argument that with higher capital gains rates, we would have less investment is demonstrably false. Because we had higher rates before, with no major changes when the rates changed.

It's a bad, bad idea and the WSJ talking about this "double taxation" standard just makes it worse. Things are often taxed, repeatedly, without deductions. There are no justifications for the capital gains rate. None.

Widmerpool said...

Another way to think about it: if you owned a business and could take all your profits in the form of wages - problem solved. Alas, the boys from the IRS would impose limitations on your ability to do that.

garage mahal said...

Mitt needs to figure out how to explain this stuff to voters.

He doesn't seem able to do that without coming off as a nervous, fidgeting, cock. And he's running on a platform of wanting to lower tax rates on himself even more?

edutcher said...

Again, having all this raised now is a gift.

If he were coasting to the nomination, he'd be hit with this stuff around September.

dmoelling said...

Mitt's problem is that he's geared to Massachusetts voters. He constitutionally is incapable of a full fledged defense of capitalism.

God, what nonsense. He's been quite dynamic in several of the debates making his case on capitalism, but d does shoot a nice big hole in Ann Coulter's argument that, because Milton won an election in a blue state, he's the only one who should get the nomination.

Dust Bunny Queen said...

Why is it reasonable that income from moving money around is taxed at less than income from working hard?

Where do you think the money comes from for start up capital for businesses? (I mean other than the money stolen from the tax payers and shoveled into stupid black hole start ups like Solyndra)

When a private individual or group of individuals put their money into investments, they are taking a big BIG risk that that money will never come back or be lost.....like Solynda.

To encourage investment, the return is taxed at a lower rate. If there is no benefit to investing....or making charitable contributions, most people will not do it.

When the risk and uncertainty of return outweigh the potential for return people will not invest in business. Industry and growth in the economy will come to a screeching halt.

LIKE NOW!

Scott M said...

He doesn't seem able to do that without coming off as a nervous, fidgeting, cock.

Just when I think you're to be taken seriously...

36fsfiend said...

Mike,

I see your point. I guess I’m looking at the 35% as a business expense for the corporation. Same as paying out salaries and other overhead. Those factors can reduce the dividend paid out. What ever I end up getting, I pay 15 % on. Not 44.75%.

Larvell said...

36fsfiend: Yes. The corporation pays the 35%. I can't say that I'm paying 35% plus 15%. I only pay the 15%.

You seem to have difficulty understanding what an "investor/shareholder/owner" is. I have a suggestion. Start a small business, incorporate yourself as a C corporation, and then see if you think you're getting a great deal because it's the corporation, not you, that is paying the 35% corporate tax.

Dose of Sanity said...

When a private individual or group of individuals put their money into investments, they are taking a big BIG risk that that money will never come back or be lost.....like Solynda.

To encourage investment, the return is taxed at a lower rate. If there is no benefit to investing....or making charitable contributions, most people will not do it.

When the risk and uncertainty of return outweigh the potential for return people will not invest in business. Industry and growth in the economy will come to a screeching halt.



Explain why the level of investment did not increase when the rate was lowered?

Oh. right. The problem with investment wasn't that it wasn't profittable.

Oh, maybe we were more willing to invest in riskier investments (and create bullcrap "tools")? Ya, that worked out for us.

TosaGuy said...

Retired people living off their investments pay 15 percent too. Should they be taxed more? How does that help the rest of society if they are?

Anybody in this nation can take the risk and invest their own money.....and pay the resulting 15 percent cap gains/dividend taxes. However, economic illiterates who do that and end up losing money bitch about how unfair it is, rather than understand that investing isn't simply printing your own money.

shiloh said...

Buffett isn't running for president, but nice try er deflection.

And it's ok to be smitten w/mittens. Really! :-P

Dose of Sanity said...

@ Tosa Guy

Everything we do carries risk. That's not a good justification for lowering the TAX rate. It doesn't make sense, except to encourage RISKIER investments.

p.s. Yes, I'm for getting rid of seperate taxation for capital gains.

TosaGuy said...
This comment has been removed by the author.
TosaGuy said...

I think most people don't get that short-term gains of traders are taxed at a higher rate than long-term gains of investors.

Rusty said...

And he's running on a platform of wanting to lower tax rates on himself even more?




No. Lowering the marginal tax rate for everyone.
Everyone with a job, that is.


13,800

Dust Bunny Queen said...

"But Romney needs to be able to explain this persuasively to the American people."

This is the key. He has not done well with this question so far and needs someone to talk it out with him so he feels he can confidently explain, in as few phrases as possible, what's going on.


I would be glad to offer my services.

I have spent most of my professinal life explaining complex financial ideas to people who never dealt with these concepts. Money makes people uncomfortable and even irrational at times.

The main thrust of my job was to educate my clients and make them understand what was happening, feel safe and be comfortable with financial decisions.

The secret to doing this is...... K.I.S.S.

Romney doesn't seem to be able to ratchet himself down to less complex level.

MayBee said...

I am certain Barack Obama only pays 15% on his capital gains.

There have been debates and hearing and Congressional staffs and economists who all hashed out the pros and cons of taxing cap gains at 15% vs. a higher rate. Romney can't go over all of that reasoning in a short amount of time.

But it was our government that determined that was best, just as it will be our government determining what insurance must cover, the government will use to control health care choices, the government will making financial decisions via Dodd Frank.

If you don't like the kinds of decisions the government makes, don't vote for the big government guy.

Dose of Sanity said...

Well, the "one-year" mark for STG vs. LTG isn't exactly a long time.

This is compounded by the fact that those quick gains are achieved by using tools (like derivitives) to further hide the length of the investment.

Rusty said...

Explain why the level of investment did not increase when the rate was lowered?


????

Rusty said...

I am certain Barack Obama only pays 15% on his capital gains.


I'm sure he paid the same as his good friend Tony Rezko.

Dose of Sanity said...

Explain why the level of investment did not increase when the rate was lowered?

Investment already yielded returns, so people ready to invest already did (though they may have gotten lower returns from that investment). For the most part, it just changed the TYPE of investments that people were willing to accept.

Dose of Sanity said...

I'm sure everyone who has capital gains pays the 15% rate, including Barack Obama. That doesn't mean he agrees with it. (he doesn't)

Any other stupid arguments?

36fsfiend said...

Larvell said...

"You seem to have difficulty understanding what an "investor/shareholder/owner" is. I have a suggestion. Start a small business, incorporate yourself as a C corporation, and then see if you think you're getting a great deal because it's the corporation, not you, that is paying the 35% corporate tax."

Well, comparing the rates between what I pay on my regular/retirement income and what I pay on my dividend/capital gains, if I could get everything at the dividend/capital gains rate, I'll be a happy camper.

Dust Bunny Queen said...

Explain why the level of investment did not increase when the rate was lowered?


Because there are more components than just taxation of gains in the investment decision.

Risk and return. Uncertainty and risk go hand in hand.

You can lower the tax rate to zero but if there is little to no certainty of return of principle or of a GAIN on the invetment, the investor is not going to shell out his or her money.

Now...do you want me to explain uncertainty? or define the various risks in investing 101?

TosaGuy said...

I won't ever defend traders who use the ETFs, etc. to muck up the market with rapid computerized buying and selling.

However, I will defend guys like Romney who invest in companies and actually do something with them -- whether that be fix them, sell off assets, whatever. Real assets are reallocated in the market and used more efficiently than they were before the investment. That carries significant risk and the amount of tax paid to government on deals that didn't work out is zero.

DoS: taxes do play a role in investing....that is one (but no the only) reason why people accept the lower rate of return on government bonds.

Dose of Sanity said...

Hey, I agree with DBQ for once. Now I just understand why she is for a different tax rate for capital gains.

Dust Bunny Queen said...

Hey, I agree with DBQ for once

Wow. Hell...freezing over.

LOL

:-D

Dose of Sanity said...

@Tosa

It's nice to discuss with someone who understands the issues, even if we totally disagree on the normative.

I wasn't saying taxation doesn't affect investment decisions, but it does not affect the AMOUNT of investment. (Just where it is allocated - low v. high risk, return, etc).

I'm glad we're on the same page for traders. I'm also constantly appalled that THEIR "wages" are treated as capital gains and taxed at 15%.

MadisonMan said...

Why should people be faulted for following Laws to pay less? Who among us wouldn't do the same thing if given the opportunity?

The blame, or fault, or outrage (whatever you want to call it) should rest on the people who wrote the law: Congress. People like Gingrich and Santorum.

Larvell said...

Explain why the level of investment did not increase when the rate was lowered?

What planet are you on? After the 1997 capital gains tax cut:

1. Capital gains tax revenues increased from $62 billion to $110 billion from 1996-1999.
2. The Dow rose from 7,000 to 10,000 in three years.
3. Venture capital funding increased from $10 billion in 1996 to $53 billion in 1999.

http://dreier.house.gov/pdf/IPI%20-%20CapGainsKey.pdf

rhhardin said...

Things are often taxed, repeatedly, without deductions. There are no justifications for the capital gains rate. None.

The justification is that capital gains come from after-tax profits reinvested in the company, on which the 35% rate has already been paid.

A dollar reinvested in the company increases the value of the company by a dollar: that's the capital gain.

MayBee said...

I'm sure everyone who has capital gains pays the 15% rate, including Barack Obama. That doesn't mean he agrees with it. (he doesn't)

Any other stupid arguments?


So what?
First of all, he's been president for 3 years and hasn't changed it. Second, that's what he's paying and that's what Romney is paying.

It's actually a worse argument for Obama to make that he believes he should pay more in taxes but doesn't, because nobody is forcing him to.

It's the law, it's the one both Obama and Romney adhere to, and Obama (unlike Romney) has been in the position to change it if he doesn't like it.

He's either ineffective or a hypocrite.

Calypso Facto said...

if I could get everything at the dividend/capital gains rate, I'll be a happy camper

You can! Quit your job and invest all your money in real estate or other long term capital holdings. Easy peasy.

What's that you say? You don't want to forsake employer benefits and take on the market risk? Ahhh...maybe you're starting to see the light?

Dose of Sanity said...

@ Larvell

Hi, my name is other variables. You may wish to look into "causation". :)

TosaGuy said...

"I wasn't saying taxation doesn't affect investment decisions, but it does not affect the AMOUNT of investment. (Just where it is allocated - low v. high risk, return, etc)."

thanks for the compliment, I do enjoy a good discussion.

Cap gains taxes used to be higher. A good data point for this debate is what was the amount invested when rates were higher compared to the amount invested under current rates (naturally with all factors such as inflation, etc figured in).

Dose of Sanity said...

@Maybee

He can't change it unilaterally. Also his argument is not that he should pay more, but that everyone should. Big difference.

Dose of Sanity said...

@Tosaguy

We could account for the value of the dollar and inflation, maybe.

Good luck accounting for variables like "strength of the economy" and "economic outlook", and the myriad of other factors that effect the decision to invest.

MayBee said...

I do bet our campaigner in chief will hit this issue in his State of the Union.

And the Democrats, who will later reject his "budget", will applaud wildly.

TosaGuy said...

...didn't see Larvell's post with investment data when I made mine asking for some.

Dust Bunny Queen said...

I'm glad we're on the same page for traders. I'm also constantly appalled that THEIR "wages" are treated as capital gains and taxed at 15%.

By "Traders" I assume you mean short term trading? In and out of the market or flipping real investments (real meaning property/real estate) in less than a year.

In that case, those gains are taxed at ordinary income rates. Long term, or over 1 year gains are taxed at the cap gains rates.

Let me explain how a privately traded REIT is taxed and watch your head explode.

:-)

Sincerely.

The tax code should be simplified and everyone !!! should pay some income taxes. We wouldn't have all these special classes and confusion. Level taxation would also eliminate the ability of people to play the class warfare game.

On the other hand, I wouldn't have had a job helping people tiptoe through the minefield of investments and taxation.

MayBee said...

He can't change it unilaterally. Also his argument is not that he should pay more, but that everyone should. Big difference.

So if Obama wants to change the cap gains tax law, and can't even with his own party in control of Congress, what does that say about his position?

And where does this leave Mitt Romney? Following the exact same tax laws Barack Obama follows. How can Obama attack him on that?

X said...

Income taxes should be cut to 15% too.

Dose of Sanity said...

@ Tosa - Ya, but his doesn't account for anything.

It's a fact that our economy has done much better when capital gains rates were high.

See? You have serious, serious problems with causation when discussing the economy.

Oh well, I should lay off the tax stuff for a bit. I have 3 tax classes this semester and I'm guessing I'm going to go insane. :)

TosaGuy said...

If cap gains taxes supposedly are too low then why does government have to create tax-friendly shelters primarily for people in the 10/15/25/28 percent income tax brackets (Roth and Trad IRAs).

Dose of Sanity said...

Income taxes should be cut to 15% too.



Ya! That will help the debt!

oh...wait...

Larvell said...

Hi, my name is other variables. You may wish to look into "causation". :)

Ah, I thought your name was "goalpost mover" -- first it's "why didn't level of investment increase?", and now it's "OK, investment did increase, but it may have been for other reasons."

Maguro said...

The reason you have a lower tax rate on investment income is to incentivize investment relative to consumption. If what you want is less investment in American business, by all means raise the tax rate on cap gains.

Dose of Sanity said...

If cap gains taxes supposedly are too low then why does government have to create tax-friendly shelters primarily for people in the 10/15/25/28 percent income tax brackets (Roth and Trad IRAs).

Because tax shelters get votes?

I'm not sure what the connection is here you drawing, to be honest.


@Larvell : Fair point. I should say that investment does not rise because rates are lowered, to be more precise. 97' is not the only time we've changed the rates, afterall.

Dust Bunny Queen said...

Oh well, I should lay off the tax stuff for a bit. I have 3 tax classes this semester and I'm guessing I'm going to go insane. :)

Thank God! I hope to hell you learn something.

:-)

Regarding lowering the capital gains rate you might want to look up 'the velocity of money' and draw some conclusion.

We are here to help.

TosaGuy said...

"It's a fact that our economy has done much better when capital gains rates were high."

That deliberately misses significant historical forces. The high tax rates on a roaring economy of the 1950s and 1960s didn't create that economy. The US having 20 years of pent up demand due to the depression/WWII, the rest of the world blown up and rebuilding, millions of new families spending money, billions of dollars freed from a war economy into the private economy.

Tax rates had little to do with that.

Dose of Sanity said...

@ Tosa Guy

Absolutely agree and totally my point in posting that. Factually true, but probably no causation value.

@ DBQ - I doubt State and Local Tax or International Tax will help very much on this issue. :-p

Dust Bunny Queen said...

@ Dose.

You know, if you truly wish to understand this stuff....investments, taxation, financial planning etc.

You should take the CFP courses. I did.

You can even do this on line.....and in your spare time /wink.

John said...

It seems to have changed in recent years but for most of his time at Berkshire Hathaway, Buffett's main source of income was a salary, as B-H CEO of $125,000 or so per year.

B-H has never paid any dividends and he never (I don't think) sold any of his B-H stock so he did not even have any capital gains to pay tax on.

Pretty much all of Buffett's net worth has always been tied up in B-H. That may have changed in recent years as he plans his estate.

So what percent tax would you expect someone to pay on $125,000 of income after typical deductions?

20-25%?

John Henry

Larvell said...

Oh well, I should lay off the tax stuff for a bit. I have 3 tax classes this semester and I'm guessing I'm going to go insane. :)

Thank God! I hope to hell you learn something.


I'm afraid three classes might not be enough, if Dose thinks there's no connection between tax rates and incentives. But there's always hope!

Dose of Sanity said...

@ DBQ - haha, spare time.

Seems interesting. I've been listening to courses from Academic Earth while working. Pretty neat, and it's all free. The few law classes up there are so-so, but I've enjoyed (re)learning coding skills from that stanford course.

Gabriel Hanna said...

Dose of Sanity is trying o have it both ways.

First he says you can tell empirically that capital gains taxes don't affect the level of investment because investment didn't decrease after the tax rate was raised.

Then he says you can't tell empircally that capital gains affect the level of investment just because the level of investment increased when the rates were lowered; we now have to consider all the OTHER factors in the economy.

The ones he gave himself a license to neglect for HIS argument.

Incidentally, for anyone who thinks people should pay more taxes on capital gains because they didn't "earn" the money-- do you also think they should get refunds on their taxes when they lose money, and if not why not?

edutcher said...

Dose of Sanity said...

Income taxes should be cut to 15% too.

Ya! That will help the debt!


Since revenue goes up when taxes go down, it will.

Does of Salts has been using PB&J as a source of information.

His latest step on the road to Hell.

Chip S. said...

...do you also think they should get refunds on their taxes when they lose money...

Certainly the people who wrote the federal tax code think so.

Dose of Sanity said...

Since revenue goes up when taxes go down, it will.



Uh...what? That literally makes no sense. If they are collecting less money, how would their revenue go up?

Dose of Sanity said...

@ Gabriel

Fair analysis, but I did try and refine my argument to say that investment doesnt increase BECAUSE of the tax rate on capital gains.

DCS said...

The assault on Romney, led by the Obama minions in the MSM, is a refinement of the us against them class warfare meme that failed to ignite any interest when directed by the smelly hippies of OWS. It has "When did you stop beating your wife" written all over it. I'm sure Romney could dismiss it in ten minutes or less, if the MSM gave him the proper forum, which they won't. They will pepper him with anecdotal evidence about Shirley Snodgrass, single mother of four, who lost her job because Dain Capital was not able to salvage the bankruptcy-destined company where she worked. They aren't interested in successful entrepeneurs like Romney. They prefer people like Mark Dayton and his ex-wife Alida Rockefeller, both of whom never worked. They inherited so much wealth they can't give it away. Or Warren Buffett, who also buys companies at bargain basement prices and sells them at a profit, but who unaccountably wants to buy Obama's approval.

Dose of Sanity said...

@ Chip

Be careful - that's not a refund. You only can offset up to the point of the gains (i.e. if you are net negative for investments, you are treated like you made no investments).

To the original post which chip responded to: I'm pretty certain we WANT risk in investments, allowing a refund would remove that risk.

cubanbob said...

Dose of Sanity said...

Judging from your comments its apparent you never owned a business or made an investment. As a someone who owns a business and makes investments trust me it does make a difference. The higher the rate the higher the return needs to be in order to make the risk worthwhile. Its like having hit one out of the park every single time instead of a series of hits to go from base to base. The higher the rate the less investment overall. And investment is what creates jobs and economic growth.

Speaking of capital gains and dividends and tax rates, its time for the large 'non profits' like Harvard University and the Ford Foundation to pay their 'fair' share of taxes on their investment incomes.

Mitt certainly needs to articulate the point better and in addition since everyone benefits equally from government services and only gets one vote why should Mitt or any net taxpayer pay one dollar more than their per capita share of government spending?

As long as he paid one dollar more he has more than paid his fair share. As as Dadavocate commented on this blog it appears you want others "to pay their fair share so you can get your free share".

Dust Bunny Queen said...

Uh...what? That literally makes no sense. If they are collecting less money, how would their revenue go up?

Less money PER transaction.

However, the NUMBER of transactions increases. Therefore in sum the amount of money collected is higher on captial gains.

In addition, the money that is now circulating in the economy, due to being released from the bondage of unrealized gains is now being used and taxed on other levels.

More transactions by the ordinary uses of money in income, purchases, reinvestment. Over and over.

VELOCITY OF MONEY

Chip S. said...

investment doesnt increase BECAUSE of the tax rate on capital gains.

And GH's point is that you have no basis for this statement.

It may amaze you to learn that there are ways to disentangle multiple influences statistically. And the people who do that conclude that taxes on capital income do in fact influence the level of investment.

Gabriel Hanna said...

@Dose of Sanity:Ya! That will help the debt!

No amount of revenue increase can keep up with Federal spending. Even if, in contradiction to basic calculus, revenues were invariably reduced after tax rates were lowered, that would have no effect on Federal spending.


Year Revenue Outlay
2002 1,853,136 2,010,894
2003 1,782,314 2,159,899
2004 1,880,114 2,292,841
2005 2,153,611 2,471,957
2006 2,406,869 2,655,050
2007 2,567,985 2,728,686
2008 2,523,991 2,982,544
2009 2,104,989 3,517,677
2010 2,162,724 3,456,213

Chip S. said...

You only can offset up to the point of the gains

No, you can use the losses to offset other income. And you can carry over unoffsettable losses to future years $3K at a time.

Dose of Sanity said...

@DBQ - To some extent, there will be more transactions. It's not going to offsent the change in the rate though. I mean - you would have to expect everyones incomes to literally double if you paid 15% income tax.

(Okay, there would be some tax from other sources like sales tax and fees, but nothing substantial enough to help offset).

Thorley Winston said...

I think that Mitt Romney should release the total amount of what he’s paid in federal income taxes and then compare that to how much Barack and Michelle Obama have cost the federal taxpayers to finance their vacations.

Gabriel Hanna said...

@Dose of Sanity: If they are collecting less money, how would their revenue go up?

Oh boy. I'd pay attention in class. Raising the tax RATE does not mean they are "collecting more money". Tax revenue depends on the tax RATE times the QUANTITY taxed. If the quantity drops, the total revenue can drop even though the rate went up.


And raising the rate a lot will guarantee that. Suppose sales of left handed monkey wrenches are taxed at 0%. Revenue collected: $0. But if they are taxed at 100,000% or some other huge amount no left handed monkey wrenches will sell, so revenue collected is also zero.

Revenue is thus a real, positive valued function of tax rate, zero at both ends. Therefore, by a simple calculus proof, a tax rate that produces maximum revenue exists. Therefore, at some tax rate, increases the tax rate will REDUCE revenue. QED.

Bender said...

"Should we be outraged at how little Mitt Romney (like Warren Buffet) pays in taxes?"

We should be outraged that Romney tries to sell us on the idea that his wealth was the result of "hard work" on his part, as if he had worked the mines to load sixteen tons, when in fact investment income is unearned passive income -- his money did most all of the working for him.

I suppose maybe Romney did some work helping to inflate the markets, helping to create the various bubbles we've had to contend with, as with Buffett and Soros and other financiers and pushers of paper wealth, but that hardly makes Romney and Joe the Plumber equals.

Dose of Sanity said...

@ Gabriel

Agreed that an increase of revenue can't deal with the debt by itself. A decrease in revenue will make it worse though.

Also, I'm capable of doing basic (and advanced) calculus. I'd love to see your formula that deals with tax and revenue. (And them somehow having an inverse relationship).

And so help god, if you include the words "Laffer curve", I'm giving you a virtual punch in the face.

Michael said...

"I'm glad we're on the same page for traders. I'm also constantly appalled that THEIR "wages" are treated as capital gains and taxed at 15%."

I believe the writer is referring to private equity firms where carried interest returns are currently taxed as long term gains versus ordinary income. Traders do not enjoy this benefit as far as I know and are taxed at ordinary income since the nature of "trading" is short term.

Romney, nobody, can explain anything to do with the economy to an audience that is fundamentally innumerate. It is probably better to take the president's approach of inventing great schemes and huge numbers ferried about by unicorns. People so want to believe. People so don't want to have to think.

edutcher said...

Dose of Sanity said...

Since revenue goes up when taxes go down, it will.

Uh...what? That literally makes no sense. If they are collecting less money, how would their revenue go up?


Since Dose of Salts apparently never had any money of his own, he doesn't understand how it works.

When the amount of disposable income is cut (when taxes go up), people economize and economic activity decreases, as do tax revenues.

When the amount of disposable income rises (tax cuts), people spend more and there is more economic activity and tax revenues go up.

So easy, even a Lef...

Well, apparently Lefties are incapable of understanding it.

PS DBQ gives a more detailed (and better) explanation, but same idea.

Chip S. said...

I'm pretty certain we WANT risk in investments, allowing a refund would remove that risk.

What?

Deductibility of losses reduces the riskiness of any given investment. That encourages more risk taking, not less.

Larvell said...

Dose, when you're taking those online classes Dust Bunny recommends, pay attention to the concepts of "Risk" and "Expected Return" in making investment decisions -- and then ask yourself, "Do I care whether the expected return is pre-tax or post-tax, or what the tax rate is?" If your answer is "No," then I congratulate you on your consistency, if nothing else.

TosaGuy said...

No one has answered the question of why does Uncle Sam deserve more than 15 percent? We does he deserve 20 or 25 or even 35?

Joe said...

In 2013, long term capitals gains will be going to 10% for anyone in the 15% tax bracket or below and 20% for everyone else. Short term capital gains will be taxed at your normal income rates. Individuals can carry over losses for only one year.

Petunia said...

NYTNewYorker hit the mark with the very first comment.

Dose of Sanity said...

@ Gab

Rate times base, but whatever.

Revenue is thus a real, positive valued function of tax rate, zero at both ends. Therefore, by a simple calculus proof, a tax rate that produces maximum revenue exists. Therefore, at some tax rate, increases the tax rate will REDUCE revenue. QED.


Yes, rate is not a sole factor, at all. Base is the other half of the equation. Yes, there are situations where at some tax rate, increases in the rate will reduce the revenue. However, this will be at an extreme, not anywhere close to a practical application.

For example, our marginal rate is just over 30%. We could probably continue to increase it to about 70-80% (not advocating for it, just for examples sake) before we saw a significant change in behavior. Why? Because people still need/want to earn income. You have to change their cost-benefit to the point that they get more by not working.

Yes, this would effect consumption and have other economic effects, yes its very simplified. It's just showing my point.

Michael said...

Bender: I expect when Romney talks about "hard work" he would not expect to be compared with coal miners and ditch diggers who clearly "work" "harder" than an investor. On the other hand I would expect that Romney worked much longer days with far fewer days off than do those in physical labor. And when not physically in the office I would think that his brain was very much engaged in business. The coal miner not so much.

Dose of Sanity said...

Deductibility of losses reduces the riskiness of any given investment. That encourages more risk taking, not less.



Again, losses aren't deductible, except to the extent of gains.

Gabriel Hanna said...

@Dose of Sanity: The calculus I presented in my 10:35 AM post.

Your reference to the so-called Laffer Curve is mere feces flinging. If you really understood calculus, you would know that the so-called "Laffer curve" is an application of calculus and not original to Laffer at all.

Of course, the fact the maximum revenue tax rate exists does not tell you what it is: the maximum revenue tax rate on incomes might well be 98%.

Chip S. said...

I'm capable of doing basic (and advanced) calculus.

Then you may remember learning this.

The function in this case is R(t), where R = revenue collected and t = tax rate.

Dose of Sanity said...

I believe the writer is referring to private equity firms where carried interest returns are currently taxed as long term gains versus ordinary income. Traders do not enjoy this benefit as far as I know and are taxed at ordinary income since the nature of "trading" is short term.

Yes, mostly. Traders use tools to make those short-terms get taxed as long term though.

As an aside, Romney's income is mostly from carried interest. So much for "investing in America"

Dose of Sanity said...

@ Gab

Very true on that last post re: laffer and the max rate.

I've just been in too many arguments where people fall back to that after saying calculus, thus the threat of the virtual face-punch.

+1 for you, haha.

Dust Bunny Queen said...

@ Dose

Real world example. Long.

I had clients who inherited a large amount of stock (15,000 shares )about 25 years ago( 1988) from several family members who had worked for the company. This was just a portion of their inherited portfolio.

The cost basis of the stock at that time was about $35 per share. They kept the stock because it payed good dividends which are taxed at a lower rate...... and it had sentimental value because it was mommy and daddy's stock. (told you money makes people irrational)

In 2010 the value of the shares was $110.

Inherited stock is not taxed at the time of receipt and it keeps the same cost basis.

1988--15,000 shares x $35 = $525,000

2010--15,000 shares x $110 = 1,650,000

Unrealized capital gains $1,125,000

They wanted to sell some of the stock previously BUT when cap gains were at 25% they balked.

So the money, gains, sat on the sidelines uncirculated in the economy until the rate dropped to 15% and they felt more comfortable with selling some of the stock.

The purchased a vacation home and bought cars for their children and took everyone on some trips. They want to spread the wealth and enjoy the investments before they die.

All the money that they spent in addition to being taxed at 15% for them, created other taxes by the sheer fact of being circulated.

Because they were dangerously over invested in certain industry sectors and in certain companies and because we felt that the stocks would not appreciate much more in that early 2010 environment, we also took most of the rest of that position as well as some other large positions (also inherited with low cost basis) into an exchange fund.

You need to look at the link.

We also did some significant estate planning in conjunction with their lawyer, CPA and myself.

Lower capital gains rates increase the velocity of money, can increase the amount of taxes ultimately collected and increase the growth of the economy.

The end. I am retired.

:-)

Larvell said...

For example, our marginal rate is just over 30%. We could probably continue to increase it to about 70-80% (not advocating for it, just for examples sake) before we saw a significant change in behavior.

Ah, I just realized that Dose is merely posing as an idiot, not being serious. Good one, sir! You had us going there for a while!

Dose of Sanity said...

@ Chip

Of course. It's the extremes, like I mentioned before.

Only at the extremes does the tax rate and the tax revenue have an inverse relationship.

I wish we had a formula that accruately calculated all of these values though - it's (almost) literally impossible though.


End of the day, yes there are some situations where tax decreases would result in revenue increases, but for the most part, this is false.

Bender said...

Romney: "my dad, as you know, born in Mexico, poor, didn't get a college degree, became head of a car company. I could have stayed in Detroit like him and gotten pulled up in a car company.
I went off on my own. I didn't inherit money from my parents. What I have I earned. I worked hard, the American way."

______________________

What we should be outraged about is Romney's disingenuous ploy to portray himself as some Horatio Alger, up from poverty, self-made man.

"What I have I earned. I worked hard." Yeah, right. Making money from investment is NOT working. People in retirement, who by definition are not working, make plenty of money from investment.

Romney needs to be able to explain this persuasively to the American people.

Go right ahead. The more he "explains," the deeper a hole he will dig for himself with disingenuous spin.

Dose of Sanity said...

@ DBQ - Do you find it ironic that your example shows that when the rate decreases some people stop investing and instead consume?

:)

blythe_masters said...

Romney won't explain anything, because it can't be explained without destroying his campaign. People advocating the "this is capitalism" or "capital gains should be taxed at a lower rate" don't understand how private equity deals work or the concept of "carried interest," which is how Romney manages to pay taxes at a 15% rate.

Private equity firms like Bain exploit a tax loophole called "carried interest" which allows them to obtain capital gains tax treatment on income derived from investments in which Bain invested little (frequently none) of its own money.

A typical private equity deal looks like this: Bain forms one or more LLCs, frequently investing $0 of their own money. Bain takes a 20% equity stake. Bain solicits funds from investors for remaining 80% of equity. The LLC leverages the equity with debt to raise capital.

The capital is used to buy out a company. Once in control, Bain pledges the assets of the company to obtain a loan, the proceeds of which are used to declare a dividend that is 1-10x what what paid for the company. The divided qualifies for dividend tax treatment.

Bain signs the now heavily-leveraged company to a "management agreement" which pays Bain millions per year. The cash flows for the company are "optimized," which typically means laying off workers, cutting R&D, killing pensions, cutting pay, etc.

The streamlined company is then disposed of, either by sale or by driving the company into bankruptcy. If the company is sold the debts are paid and the remainder goes to the equity holders. Bain takes its proceeds as capital gains, EVEN THOUGH NO CAPITAL WAS INVESTED. This is the magic (read: scam) of carried interest.

If the company goes bankrupt the debt holders are screwed. Either way, Bain wins.

Mitt Romney and Bain are not ordinary investors, they are corporate raiders. They don't spot promising new products, technologies, or business models, invest in them, and watch them grow. The is no iMitt product developed by a Bain company, or Mitt.com disruptive business model. There is just a landscape littered with corporate cadavers that have been picked clean by vulture capitalists.

And through the magic of "carried interest" the proceeds are taxed at a 15% tax rate.

Romney is not responding to the allegations because he knows that he can't. The truth is so ugly it will destroy his campaign immediately. So instead he stands on the stage flashing his idiotic grin and spouts platitudes.

Something has gone terribly wrong in the Republican party. In the Reagan era this party advocated lower rates, a broader base, and closing tax loopholes which induce economically inefficient behavior. Somehow in 2012 this party has morphed into the party which defends an economically inefficient tax loophole which is destructive and completely unjustifiable.

Romney is toxic waste as a candidate. He will lose in a landslide to Obama.

Dose of Sanity said...

@ Blythe

Wow, solid analysis of carried interest.

Nice job taking the time to do that!

Gabriel Hanna said...

@Dose:End of the day, yes there are some situations where tax decreases would result in revenue increases, but for the most part, this is false.

Actually, you don't have any idea if this is true, and it has nothing to do with "extreme" tax rates. It's not the tax rates that are at "extreme values" for this to work, but the tax REVENUE is at a local EXTREMUM...

Anyway, what is NOT true is that lowering taxes INVARIABLY increases revenue, though some Republicans seem to have that impression.

I myself favor lower tax rates for moral reasons, basically, and a smaller government for the same reasons. So the "lowering taxes may increase revenue" argument is somewhat irrelevant for me. And for the government too which has nearly doubled its spending over a ten year period in which revenue hardly budged, as you can see in my 10:29 post.

No tweak to the tax code can fix the deficit--it's a spending problem.

edutcher said...

Bender said...

"What I have I earned. I worked hard." Yeah, right. Making money from investment is NOT working. People in retirement, who by definition are not working, make plenty of money from investment.

Riiight.

Easy as poi.

Last I heard, people go broke in the markets all the time.

That's why people invest in Buffet's company.

Chip S. said...

Of course. It's the extremes, like I mentioned before.

Only at the extremes does the tax rate and the tax revenue have an inverse relationship.


Larvell must be right.

Dust Bunny Queen said...

@ DBQ - Do you find it ironic that your example shows that when the rate decreases some people stop investing and instead consume?

Gah!

You really really don't get it.


I give up. Too stupid to help. You are one of those prospects that I would kindly refer to another adivsor. Life is too short to deal with density.

Gabriel Hanna said...

@blythe masters:

And of course you can document this with the names of actual companies to which Bain supposedly did this, and show that Romney was at the helm when this happened?

Bender said...

Word on the street is that the reason that Romney doesn't want to release his income tax returns is because it will show that he made a lot of money from the financial industry in 2008 when the economy was crashing and the financial industry was bailed out. That is, while other people were losing their jobs, homes, and shirts, and taxpayers were getting soaked, "hard-working" Romney was making off like a bandit.

Dose of Sanity said...

Actually, you don't have any idea if this is true, and it has nothing to do with "extreme" tax rates. It's not the tax rates that are at "extreme values" for this to work, but the tax REVENUE is at a local EXTREMUM...

Anyway, what is NOT true is that lowering taxes INVARIABLY increases revenue, though some Republicans seem to have that impression.

I myself favor lower tax rates for moral reasons, basically, and a smaller government for the same reasons. So the "lowering taxes may increase revenue" argument is somewhat irrelevant for me. And for the government too which has nearly doubled its spending over a ten year period in which revenue hardly budged, as you can see in my 10:29 post.

No tweak to the tax code can fix the deficit--it's a spending problem.



Good analysis. We agree on how the system works. We just favor different levels of spending and taxation. I know spending needs to be drastically cut. To what level is our debate. The amount we need to tax is also dependent on that.

Ironically, I would also call mine a moral argument. :)

Rusty said...

End of the day, yes there are some situations where tax decreases would result in revenue increases, but for the most part, this is false.

1/20/12 10:50 AM



No it isn't.
Kennedy 6.7% increase in revenues
Reagan 5.4% increase in revenues
Bush2 3.4% increase in revenues

Dose of Sanity said...

@ DBQ

I got your example perfectly, talking about how fluid the market is. I get it, really. Don't worry about that.

But it is true your example was less investment and more consumption. :-p

(yes, I get that consumption could be used for more investment later, helping everyone grow. I was just joking around with you. Relax)

Dose of Sanity said...

@ Rusty

http://rricketts.ba.ttu.edu/Tax%20Rates%20and%20Revenues.htm

Chip S. said...

Ironically, I would also call mine a moral argument. :)

You'd have to be making that argument ironically. Otherwise it wouldn't make any sense.

Hoosier Daddy said...

"... No amount of revenue increase can keep up with Federal spending..."

Gabriel, those numbers can't he right. Bushs tax cuts took place in 2003 and your chart shows increased revenue after 2003.

That's not possible because everyone knows reduced taxes mean reduced revenue for the government.

Dose of Sanity said...

LOOK AT THE CHART PEOPLE. IT'S A CHART.


Actually, his analysis underneath is pretty solid too.

http://rricketts.ba.ttu.edu/Tax%20Rates%20and%20Revenues.htm

Calypso Facto said...

@ Bender: Sorry you don't value intellectual work. I, for one, am glad some people work with their minds. Especially someone vying to become president where there's little personal ditch-digging to accomplish.

@ Gabriel: I agree that "what's the maximum revenue point of income taxation" is the wrong question. What we need to be asking is "what's the minimum federal spending required to accomplish Constitutionally derived functions?"

@ Blythe: here's an alternate scenario in short: Bain takes over failing companies and returns somewhere between 60-78% (depending on whose numbers you believe) of them to profitability, saving jobs and earning a gain.

Jay said...

ose of Sanity said...

Ya! That will help the debt!

oh...wait...


You pretending you care about "the debt" is silly & obscene.

Dose of Sanity said...

Oh...fail on my html tag. Here we go.

Here is the working link

Jay said...

Dose of Sanity said...
@ Rusty

http://rricketts.ba.ttu.edu/Tax%20Rates%20and%20Revenues.htm


This isn't an arugment, rebuttal, or valuable.

Bushman of the Kohlrabi said...

Word on the street is that the reason that Romney doesn't want to release his income tax returns is because it will show that he made a lot of money from the financial industry in 2008 when the economy was crashing and the financial industry was bailed out.

Thanks for the word on the street. If true, Romney owes Obama quite a debt of gratitude.

Jay said...

Dose of Sanity said...
Oh...fail on my html tag. Here we go.

Here is the working link


Guess what you link left out?

The 1997 cap gains tax cuts which when enacted increased federal revunes.

OOPS

Dose of Sanity said...

@ Jay

Is it annoying to see it layed out that tax rate cutes have decreased revenue?

Yes there are other factors, but at least it kills the bullshit that tax cuts increase revenue.

Also, why is it obscene I care about the debt?

Jay said...

End of the day, yes there are some situations where tax decreases would result in revenue increases, but for the most part, this is false.


Hysterical.

Yes, it would be "false" except for every single time tax cuts have been enacted, revenue increased.

Jay said...

ose of Sanity said...
@ Jay

Is it annoying to see it layed out that tax rate cutes have decreased revenue


It wasn't "laid out" at all.

Dose of Sanity said...

Yes, it would be "false" except for every single time tax cuts have been enacted, revenue increased.

You can't read that chart?

Jay said...

Dose of Sanity said...
@ Jay

Is it annoying to see it layed out that tax rate cutes have decreased revenue


You mean except for the fact that after th 1997 Cap Gains tax cut the federal deficit was zero?

Don't worry, you read some leftist's blog and you're like informed on the issue now.

strongoldguy said...

So, Mitt is making 85% of the 65%?That leaves him with about 55% of each dollar his investments make. I'm thinking that the government skiming off 45% should be enough.

Tax policy has real behavioral ramifications. My dad was born to humble circumstances in 1931; his service in Korea was about as awful as it gets. Riding the wave generated by a patent he had been granted, he was finally "making it" by 1978. However, given that his company was "too small" (sales at the time of about $3 million) he could only receive a salary of about $100K; the rest of the corporate net income had to be distributed as dividends. He was looking at the max corporate tax rate of 46% and a personal tax rate of 62% over $100K (70% over 200K). He figured that 16-20% on the dollar was not worth running the busines.

He wound up selling the company to a group led by an economics professor from Purdue. The guy had served as Assistent Deputy of Agriculture under Earl Butz. (An academic and man from the gov'ment; how could you lose with that twofer?)

Lose he did. He spent the next ten years and a small fortune fighting the IRS for taxes owed on the contracted sale price. Unfortunately, other than a small downpayment of "earnest" money, he was never paid. Within two years of the sale, our erstwhile professor and his hand picked operational genius had run the company into the ground. My dad wound up inadvertently retired at age 50.

Just remember: it's your money. The debate has to focus on how many golden eggs you can take from the goose before she dies.

Jay said...

Dose of Sanity said...

You can't read that chart?


That chart isn't fact.

Don't worry, you read some leftist's blog and you're like informed on the issue now.

edutcher said...

Bender said...

Word on the street is that the reason that Romney doesn't want to release his income tax returns is because it will show that he made a lot of money from the financial industry in 2008 when the economy was crashing and the financial industry was bailed out. That is, while other people were losing their jobs, homes, and shirts, and taxpayers were getting soaked, "hard-working" Romney was making off like a bandit.

How dast he!!!!!

A lot of people saw the crash coming (Peter Schiff, Nouriel Roubini, Dr Evil) and got out in time.

If Romney is at all market-savvy, he would have made the same decision.

But this "word on the street" sounds an awful lot like more of GodZero's class warfare.

PS Met a guy who survived '91. He said, "Anybody who'd been in the market for a while saw it coming and got out. The rest wanted to wring every last cent out of it.

There's bulls and bears, but hogs, they get slaughtered".

Words to live by.

Dose of Sanity said...

@ Jay

You mean except for the fact that after th 1997 Cap Gains tax cut the federal deficit was zero?

Don't worry, you read some leftist's blog and you're like informed on the issue now.



Read the thread, please. We've talked about 1997 already.

TosaGuy said...
This comment has been removed by the author.
Gabriel Hanna said...

@Dose of Sanity: I cited the White House's actual numbers. Look at the table I posted at 10:29. Revenue goes up from 2003 - 2007. After a tax cut.

The guy you are citing has a chart, not in dollars, but in % of GDP. Government revenues are measured in dollars, sir.

In other words, you either tried to trick us or didn't read your source.

Jay said...

Dose of Sanity said...

You can't read that chart?


*Giggle*

Tax revenues are climbing twice as fast as the administration predicted in February, so fast that the budget deficit could actually decline this year.

The main reason is a big spike in corporate tax receipts, which have nearly tripled since 2003, as well as what appears to be a big increase in individual taxes on stock market profits and executive bonuses.


Oh well, so much for tax revenues increasing.

Jay said...

Dose of Sanity said...

Read the thread, please. We've talked about 1997 already.


Who cares?

Your "chart" didn't.

Stop pretending you understand economics.

Larvell said...

You can't read that chart?

You are aware, aren't you, that the chart you are so enamored with doesn't purport to show actual receipts, but shows receipts as a percentage of gross domestic product? Or to put it another way, it doesn't show what you say it shows?

Gabriel Hanna said...

@jay: The chart's a trick anyway. It doesn't show a decrease in revenue, it shows an increase. Dose either can't read it, or doesn't think we can.

TosaGuy said...

"Also, why is it obscene I care about the debt?"

How much spending should we cut?

I understand that the future will bring large tax increases on everyone. It simply has to and will happen. However, as that taxpayer, I want to see massive cuts first so that my tax hikes will actually mean something other than more $$$ for politicians to buy political favors and expand their power.

In the current political environment, tax hikes are being promised as punishment by the political class on a small segment of the population because jealous people are angry. They are not being touted as responsible methods to fund the government.

Jay said...

Gabriel Hanna said...
@jay: The chart's a trick anyway. It doesn't show a decrease in revenue, it shows an increase.


Which of course is even funnier.

READ THE CHART!!!

Dose of Sanity said...

@ Tosa

You should have asked. I also believe we need spending cuts and much more responsibile government. I still believe it can provide services though.


As to the chart. I understand percentages vs. actual, but as we've discussed, there are many, many variables when talking about the economy and the revenue collected. The chart is a good visual which accounts for some of those variables. (or, ignores depending on how you want the results to turn out).

Chip S. said...

Yes, that chart is hilarious. Who would have guessed that if you lower the percent of income paid in taxes, taxes would fall as a percent of income?

Shocking.

Bender said...

If Romney is at all market-savvy, he would have made the same decision.

So you think that that is a great selling point?? You think that Romney should put out ads saying "While you were losing your house, while you were getting laid off, and while you worried about your retirement funds, I was making money and getting rich. So you should vote for me."?

You really think that voters will be so impressed with Romney's smarts and savvy to profit during the misery of others that they will run to the polls to vote for him?

If so, why not vote for George Soros? He made a ton of money doing the same thing.

Gabriel Hanna said...

The chart Dose cites is an interesting bit of sophistry. As Does acknowledged, revenue = base * rate. The chart Does cites divides the revenue by the bas, and is thus a plot of overall tax RATE on the economy, not REVENUE. So Dose's chart will ALWAYS show that decreasing RATES will decrease REVENUE / BASE--which is true by definition.

The question is, did Dose fall for it too, or did he just think we would?

object lesson: always read the chart axes, and don't be fooled by a plot.

Jay said...

Dose of Sanity said...
As to the chart. I understand percentages vs. actual, but as we've discussed, there are many, many variables when talking about the economy and the revenue collected.


Hysterical.

Five minutes ago it was this "fact":

Dose of Sanity said...
@ Jay

Is it annoying to see it layed out that tax rate cutes have decreased revenue?



I know, I know, so many lies you can't keep them all straight...

Marshal said...

This is not going to matter in the primary. Republicans aren't demogogues, they know these attacks are nonsense. In the general maybe ten percent of voters are open to changing their opinion, and most of these are so disengaged no explanation longer than 15 seconds matters.

So in election terms this doesn't matter at all. It gives people who were always going to vote for Obama something to pretend is the cause. But people ignorant enough to believe paying taxes according to the law is a negative political issue are going to vote for Obama because Mitt's a racist, or he'll overturn Roe, or he'll cancel the next election and turn the country into a Mormon Theocracy.

Gabriel Hanna said...

@Dose:The chart is a good visual which accounts for some of those variables.

No. It is a plot of tax rates. Of course tax rates decrease when you decrease tax rates!

The chart doesn't have ANYTHING to do with the point under discussion!

Jay said...


Is it annoying to see it layed out that tax rate cutes have decreased revenue?


PS, this has never happened in the history of America.

Ever.

AJ Lynch said...

DBQ said:

"I mean other than the money stolen from the tax payers and shoveled into stupid black hole start ups like Solyndra"

It is more like a stupid green hole. I think it's racist to call it a black hole :)

Larvell said...

Dose 11:11: Is it annoying to see it layed out that tax rate cutes have decreased revenue?

Dose 11:27: As to the chart. I understand percentages vs. actual, but as we've discussed, there are many, many variables when talking about the economy and the revenue collected. The chart is a good visual which accounts for some of those variables. (or, ignores depending on how you want the results to turn out).

All in 16 minutes.

wv: shnec -- Dose is such a shnec.

Dose of Sanity said...

Yes, that chart is hilarious. Who would have guessed that if you lower the percent of income paid in taxes, taxes would fall as a percent of income?

The chart Dose cites is an interesting bit of sophistry. As Does acknowledged, revenue = base * rate. The chart Does cites divides the revenue by the bas, and is thus a plot of overall tax RATE on the economy, not REVENUE. So Dose's chart will ALWAYS show that decreasing RATES will decrease REVENUE / BASE--which is true by definition.

Both of you are overlooking the fact that the GDP is not just income.

Also, the chart does not divide the revenue by the base, at all.

Gabriel Hanna said...

@Dose of Sanity:Also, the chart does not divide the revenue by the base, at all.

Dose, the goverment collects REVENUE from ALL KINDS OF TAXES, not just taxes on INCOME.

The CHART YOU LINKED TO showed government REVENUE from ALL SOURCES, DIVIDED BY the ENITRE DOMESTIC ECONOMY, also known as the TAX BASE.

READ THE CHART.

Here are the White House's figures, AGAIN:

Year Revenue Outlay
2002 1,853,136 2,010,894
2003 1,782,314 2,159,899
2004 1,880,114 2,292,841
2005 2,153,611 2,471,957
2006 2,406,869 2,655,050
2007 2,567,985 2,728,686
2008 2,523,991 2,982,544
2009 2,104,989 3,517,677
2010 2,162,724 3,456,213

Gabriel Hanna said...

@Dose:

Let me quote for all to see it, the title of your chart:

TOTAL OUTLAYS AND REVENUE AS A PERCENTAGE OF GROSS DOMESTIC PRODUCT

Why do you think we are so stupid you can keep moving the goalposts and no one will notice?

Since I am not trying to LIE to anyone, I cited the RELEVANT FIGURES UNDER DISCUSSION, to wit, the actual dollars in REVENUE the government collected each year.

Dose of Sanity said...

DIVIDED BY the ENITRE DOMESTIC ECONOMY, also known as the TAX BASE.

Oh, that's not a tax base. If you aren't taxed, you aren't part of the base. Tax rate x The amount the tax applies to = revenue.

There are lots and lots and lots of things not taxed which contribute to the GDP.

To circle back - why does the revenue increase when tax rates were increased then?

Probably because you have to known that the growth of the economy is not solely deteremined by government policies.

Which is why this is so difficult to argue, and nigh impossible to prove.

Dose of Sanity said...

Which, by the way, is part of your argument.

You essentially argue that by reducing the rate, you can increase the base enough that net revenue increases.

I disagree that the reduction of rate increases base enough to offset the reduction in rate.

...well, I shoulda led with that. Much simplier. Sorry for being sloppy before.

Joe Schmoe said...

I bet Mitt at least had the good sense not to write off, as a business expense, a limo service for taking his kid to summer camp.

Joe Schmoe said...

Sorry for being sloppy before.

Dose, sloppy is your middle name when it comes to discussing finance.

Hoosier Daddy said...

Hannah shows hard numbers of increased tax revenue after tax cuts yet Dose insists revenue decreased.

That's when you conclude there is no convincing an idiot. I'm not trying to be mean Dose but Jesus....

Gabriel Hanna said...

@Dose:Probably because you have to known that the growth of the economy is not solely deteremined by government policies

Changing the argument YET AGAIN.

10:23 That literally makes no sense. If they are collecting less money, how would their revenue go up?

11:11Is it annoying to see it layed out that tax rate cutes have decreased revenue?

Can you just admit you were wrong and didn't read the chart, instead of trying to pretend you said something different from what you said? What's so hard?

Gabriel Hanna said...

@Dose:I disagree that the reduction of rate increases base enough to offset the reduction in rate.

Except that revenues INCREASED. So either you are wrong, or rate*base is not equal to revenue. Which is it?

Dust Bunny Queen said...

That's when you conclude there is no convincing an idiot. I'm not trying to be mean Dose but Jesus....

I've already given up.

Gabriel Hanna said...

@Dose: IRS figures, individual income tax liability by year in constant dollars:

2001: 1,020,539
2002: 906,386
2003: 835,952
2004: 903,622
2005: 980,259

What happened to the individual income tax liability after the 2003 tax cuts, and for the next two years?

It INCREASED. Even though the tax rate on INDIVIDUAL INCOMES DECREASED, the total income taxes that individuals owed INCREASED.

Chip S. said...

Both of you are overlooking the fact that the GDP is not just income.

You're right. It differs from income by the amount of depreciation, which is function of the amount of capital at the start of the year, which is not going to respond much to changes in this year's tax rates.

Also, the chart does not divide the revenue by the base, at all.

Um, "income" is the base for "income taxation."

Dose of Sanity said...

As I've mentioned many times, growth of the economy will increase the base. There will be more taxable revenue.

This growth is not determined solely by government policies. I'm not changing the goalposts gab, I'm trying to talk about a very complex, multivariate relationship in the simplest terms.

Of course rate x base = revenue. It's the most basic of mathematical formulas. We are arguing what happens as a result of changing rate. I agree it decreases revenue, but when I do you must realize that I have to be assuming a unchanging base, which will never happen. Yes, there will be an effect of rate increasing the base, but my argument is that it is minimal compared to other factors.

Here is the easiest way to prove that: If your argument were true, an increase of rate would result in the reduction of revenue (which it doesn't).

Instead, you have to realize that the base will change for variables that are not effected by the rate at all. These factors include population (more people to tax), inflation (more money to tax), the global economy, and more.

See what I mean?

Chip S. said...

Which is why this is so difficult to argue, and nigh impossible to prove.

You keep saying this, but only after your prior assertions of proof have been refuted decisively.

Gabriel Hanna said...

@Dose: If your argument were true, an increase of rate would result in the reduction of revenue (which it doesn't).

You have moved the goalposts ONE MORE TIME. You cannot even state what "our" argument is, and you cannot state YOURS the same way TWICE. What's the point of continuing any further?

Chip S. said...

We are arguing what happens as a result of changing rate. I agree it decreases revenue, but when I do you must realize that I have to be assuming a unchanging base...

Just stop. Please stop. For your own sake.

Hoosier Daddy said...

You know, I think we found Bagdahd Bob.

There are no American tanks in Bagdahd!!!!

It is fascinating that after the tax cuts, GDP growth outpaced tax revenue.

Pastafarian said...

Hey Dose of Sanity -- I have a suggestion for you:

Go incorporate yourself.

No, seriously. Form Dose of Sanity, Inc, a c-corp.

Suppose you currently make $100 in salary over a given period from your current employer (Butt Plugs & Such), and you currently pay $30 taxes on that income. (Just to use round figures.)

You form your corporation, and then your corporation sells your services to BP&S for $100. Now, your corporation (if its income is high enough) will pay $35 in taxes; and then when you take the remaining $65 in dividends, you'll pay 15% on that, so you're left with $55.25.

What's that you say? What happened to the extra $29.75 that you'd use to purchase your marijuana?

You rich fat cat you, always looking for another loophole. Take your $55.25 and feel lucky we've let you keep that, greedy Rethuglikkkan.

Scott M said...

@HD

Where'd you slack off to? I got the new toon to 10 before calling it quits.

Alex said...

Didn't Mittens say he's gonna stuff capitalism down Obama's throat? Where's the streetfightin' Mittser?

Alex said...

Gabriel Hanna - of course we can make revenue match outlays, cut spending or do a one-time "soak the rich" punishment tax to make up the shortfall.

Michael said...

Dose.

What "tools" do traders, traders, use to convert trading profits to long term gains. Be interested in the names of the tols and how they are employed.

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