Entitlements?

[Penumbra]

I don't argue against those points.

I don't argue against that either.
I'm speaking primarily against 2 things:
1) A free ride
2) Taxation which discourages production or is confiscatory

2) Which is why I favor a shift towards more consumption tax.

But there's not a whole lot to say if one agrees with the proposition that those that own 2.5% of the wealth shouldn't pay more than approximately 2.5% of the tax revenue, in aggregate.

I wouldn't propose taxing equity directly. I think tax should focus primarily on consumption, and secondly on income, but with a focus to have it balance reasonably such that large statistical groups are not paying more than their fair share, especially the lower groups.

If there are those that propose that the bottom 50% which controls 2.5% of the wealth should contribute more than about 2.5% of the federal tax income, then it gets interesting.

 

[Penumbra]

The rich should sacrifice a greater portion but that should not relieve anyone else from participating in the system and being responsible.

There is going to have to be some pain for there to be any gain.

We are all in this together right?

Agreed, but I'm curious as to your answer to the question.

Should the group that owns 2.5% of the wealth of America pay more than 2.5% of the annual federal tax income?

 

[Reverend Rick]

Agreed, but I'm curious as to your answer to the question.

Should the group that owns 2.5% of the wealth of America pay more than 2.5% of the annual federal tax income?

I'm still mulling this over. We are talking about income tax where you are talking about accumulated wealth.

I applaud your attempt at fairness but on the other hand your suggestion would reward the wasteful and penalise the frugal saver.

I've already said the rich needs taxed at a higher rate, but I'm talking about income not their wealth.

The problem with eating the rich is it is only one meal and not a permanent solution.

 

[Revoltingest]

But there's not a whole lot to say if one agrees with the proposition that those that own 2.5% of the wealth shouldn't pay more than approximately 2.5% of the tax revenue, in aggregate.

I don't agree or disagree with it. I prefer that equity to be irrelevant to income taxes.

 

[Penumbra]

I'm still mulling this over. We are talking about income tax where you are talking about accumulated wealth.

I applaud your attempt at fairness but on the other hand your suggestion would reward the wasteful and penalise the frugal saver.

I've already said the rich needs taxed at a higher rate, but I'm talking about income not their wealth.

The problem with eating the rich is it is only one meal and not a permanent solution.

No, I'm not suggesting we reward the wasteful and penalize the saver. I've speficially said I wouldn't want to tax equity directly. Without taxing equity directly, it's impossible to have people pay an amount exactly equal to their share of wealth. But it's a number meant to show how imbalanced it currently is.

Those that bring in the most income, often have an even larger percentage of wealth. That's because the wealthiest people are not generally deriving income from an external source; they're generating income from their own capital. Their own businesses, their own stock, bonds, and partnerships, etc. Income from those sources is typically taxed at a low rate. And those that do not have capital, are in a difficult position to ever increase their wealth.

It's because it's not progressive enough. The American tax system isn't very progressive. A lot of fiscal conservatives talk about increasing the number of people that pay taxes, but most people have a very tiny proportion of the overall wealth. In many cases, even income taxation is regressive, with the highest earners paying less than those in the middle class.

It seems to be a matter of picking the number that is most favorable to the wealthy. If I make $70k, and my neighbor makes $35k, and I have $100k in equity, and my neighbor has $10k in equity, should I be paying 2x as much in taxes, or 7x as much in taxes, compared to her? In this case, I should argue that we should base taxes on income, while she should argue that we should base taxes on wealth.

What I'd propose is that we tax income and consumption, but in a way that I end up paying a significantly larger percentage than her (because her income is so low, it doesn't leave much room for capital appreciation, whereas I have a significant amount of disposable income that I can do whatever I want with, such as squandering it on excess consumption or using it for capital appreciation). And If I make $20 million and have $200 million in equity, then the same thing applies.

That's the principle behind progressive taxation. Those towards the bottom of the income spectrum have basically all of their income eaten up by necessary consumption. As income grows, one has more and more opportunity for wealth accumulation. So taxing at an increasingly higher percentage, the wealthier one is, up to a point, keeps the system stable and fair, while still allowing people to have the fruits of their labor and fortune.

Otherwise we end up in our current situation where we have the highest income inequality in the developed world, lackluster primary education systems, not so great infant mortality rates, difficult to afford colleges, and various other problems.

 

[Reverend Rick]

We need more wealthy people, not less. Yes, the person making 100K is better off but we fail to recognise how much sacrifice these folks have made investing in their education and hard work.

Yes, many people do make a living off of investments, but that is really hard to do right now. You forget that there is risk involved and with interest rates what they are, a person who has worked all their life to achieve what they have is far different than the Paris Hilton's in the world.

Many people look upon folks who make less than a million as rich which is really not the case when you are trying to accumulate wealth.

A millionaire was something special once upon a time. Now, it is barely enough for retirement.

I believe in the future if you want to be middle class, you will need to have accumulated a seven figure net worth in your life time.

Myself, when you remove incentive by taxing me at a higher rate, I take a harder look at the risk reward factor. That is why many folks are not hiring right now.

I want things to be fair, but when the majority can vote that the minority carry the burden while they carry nothing themselves it causes class warfare.

When we vote to raise taxes, it should require a shared sacrifice that will make folks step back and realize this is going to affect everyone not just some of us.

Waste, fraud, and abuse matters little when you have no skin in the game.

 

[Penumbra]

We need more wealthy people, not less. Yes, the person making 100K is better off but we fail to recognise how much sacrifice these folks have made investing in their education and hard work.

Yes, many people do make a living off of investments, but that is really hard to do right now. You forget that there is risk involved and with interest rates what they are, a person who has worked all their life to achieve what they have is far different than the Paris Hilton's in the world.

Many people look upon folks who make less than a million as rich which is really not the case when you are trying to accumulate wealth.

A millionaire was something special once upon a time. Now, it is barely enough for retirement.

I believe in the future if you want to be middle class, you will need to have accumulated a seven figure net worth in your life time.

Myself, when you remove incentive by taxing me at a higher rate, I take a harder look at the risk reward factor. That is why many folks are not hiring right now.

I want things to be fair, but when the majority can vote that the minority carry the burden while they carry nothing themselves it causes class warfare.

When we vote to raise taxes, it should require a shared sacrifice that will make folks step back and realize this is going to affect everyone not just some of us.

Waste, fraud, and abuse matters little when you have no skin in the game.

There are people working 10 hour days of physical labor that barely pays for their family to survive. They're asked to give more. And the "job creators" are creating jobs in other countries where they don't have to worry as much about pesky environmental or labor standards.

Not taxing the middle class as much is what leads to more wealthy people. If, instead, their effective tax rate ends up being higher than the Warren Buffett's of the world, then the system is preserving the number of wealthy and protecting them, rather than opening up the gates for more.

The US already has the highest income inequality in the developed world. So I agree, we need more shared sacrifice, because currently it's not shared enough.

 

[Reverend Rick]

There are people working 10 hour days of physical labor that barely pays for their family to survive. They're asked to give more. And the "job creators" are creating jobs in other countries where they don't have to worry as much about pesky environmental or labor standards.

Not taxing the middle class as much is what leads to more wealthy people. If, instead, their effective tax rate ends up being higher than the Warren Buffett's of the world, then the system is preserving the number of wealthy and protecting them, rather than opening up the gates for more.

The US already has the highest income inequality in the developed world. So I agree, we need more shared sacrifice, because currently it's not shared enough.

OK, here is the thing, yes capital gains are taxed at a lower percentage than income. There is a reason for that. Capital gains are not guaranteed like income is. Think about it, when you work for a living, you know your going to get a pay check. When you invest, many times you lose your money. Not only are you not going to be able to live off the gain, you have lost your ability to reinvest without risking more capital if you even have any money left to double down on your loss.

Lets say I play three hands of black jack and I lose the first hand. I'm down a buck.

Now, I play the second hand and win. To me, I am even but to the government I owe them 15 cents on my winnings of the second hand.

Lets say I win the third hand, I pay another 15 cents in tax.

I risked three dollars and made 70 cents after tax.

To me, I paid 30% tax on my winnings not the 15% capital gain tax.

So yes, if I always won I would be paying less taxes than the hourly worker but life rarely works out that way.

Capital gains is not income, they are apples and oranges and should be taxed differently.

 

[Penumbra]

OK, here is the thing, yes capital gains are taxed at a lower percentage than income. There is a reason for that. Capital gains are not guaranteed like income is. Think about it, when you work for a living, you know your going to get a pay check. When you invest, many times you lose your money. Not only are you not going to be able to live off the gain, you have lost your ability to reinvest without risking more capital if you even have any money left to double down on your loss.

Lets say I play three hands of black jack and I lose the first hand. I'm down a buck.

Now, I play the second hand and win. To me, I am even but to the government I owe them 15 cents on my winnings of the second hand.

Lets say I win the third hand, I pay another 15 cents in tax.

I risked three dollars and made 70 cents after tax.

To me, I paid 30% tax on my winnings not the 15% capital gain tax.

So yes, if I always won I would be paying less taxes than the hourly worker but life rarely works out that way.

Capital gains is not income, they are apples and oranges and should be taxed differently.

Why do you assume I'm just referencing capital gains?

Let's say I have 20 dividend paying stocks that all have low debt levels, strong businesses, and increase their dividends every year. That makes up 50% of my portfolio. Then I've got a percent dedicated to bonds, that pay interest rates, and are spread over hundreds of companies and countries. Then I've got stake in a personal business, and also own some partnerships or something. And I own some rental property. So my income in this example comes in from 100s of different sources.

Is that riskier or less risky than income from a single job that a person can be let go from? Is it more likely that Johnson and Johnson, McDonalds, Procter and Gamble, Exxon Mobil, Walmart, Microsoft and various other companies all start defaulting on their debt and cutting their dividends, and that my own business fails and that my rental property stops generating income, all at once, or that a person gets let go from a single job?

 

[Reverend Rick]

Why do you assume I'm just referencing capital gains?

Let's say I have 20 dividend paying stocks that all have low debt levels, strong businesses, and increase their dividends every year. That makes up 50% of my portfolio. Then I've got a percent dedicated to bonds, that pay interest rates, and are spread over hundreds of companies and countries. Then I've got stake in a personal business, and also own some partnerships or something. And I own some rental property. So my income in this example comes in from 100s of different sources.

Is that riskier or less risky than income from a single job that a person can be let go from? Is it more likely that Johnson and Johnson, McDonalds, Procter and Gamble, Exxon Mobil, Walmart, Microsoft and various other companies all start defaulting on their debt and cutting their dividends, and that my own business fails and that my rental property stops generating income, all at once, or that a person gets let go from a single job?

I'm sure Rev could explain this better than I, but my renters could not pay me rent and I could have to hire a lawyer to get them out. I lose 3 months rent plus my expenses to clean up the joint and find another renter. This could cause me to have a loss for the year not a gain. Then my stocks could go down and I could lose even more capital. Yes, the bonds would pay me interest, but to make a decent living above the poverty level, I would need several millions worth to make it when they are paying less than 1% interest.

I don't expect you to sympathise, but it's not all that rosy as it once was.

The thing that really makes one nervous is an investor could actually be a millionaire and have an income less than the poverty level.

People who have accumulated wealth over time are old. One good stay at the hospital could wipe them out after a life time of earning.

 

[Penumbra]

I'm sure Rev could explain this better than I, but my renters could not pay me rent and I could have to hire a lawyer to get them out. I lose 3 months rent plus my expenses to clean up the joint and find another renter. This could cause me to have a loss for the year not a gain.

Yes, if you relied only one a few renters, but that wasn't my example. A person who relies on only a few renters isn't wealthy.

Then my stocks could go down and I could lose even more capital.

You lose paper capital, not income. You only lose income from the stocks if they run into problems and can't support their dividends anymore. Even in the 2008 financial crisis, a diversified collection of dividend paying stocks would have maintained most of its income.

Yes, the bonds would pay me interest, but to make a decent living above the poverty level, I would need several millions worth to make it when they are paying less than 1% interest.

That's only the case if you rely entirely on bonds or have a large bond allocation. In my example, bonds were only a part.

I don't expect you to sympathise, but it's not all that rosy as it once was.

The thing that really makes one nervous is an investor could actually be a millionaire and have an income less than the poverty level.

People who have accumulated wealth over time are old. One good stay at the hospital could wipe them out after a life time of earning.

A million dollars can give someone $40-50k of fairly stable income, if it's put into real estate, 4-5% yielding stocks, a few REITs or MLPs, and some bonds. More importantly to the point, someone with a million dollars of equity, and has no outside job other than raising capital from their own capital, isn't a particularly wealthy person. That's equivalent to someone trying to retire early when they are, say, 50 years old and have a reasonable 401k.

 

[Reverend Rick]

More importantly to the point, someone with a million dollars of equity, and has no outside job other than raising capital from their own capital, isn't a particularly wealthy person. That's equivalent to someone trying to retire early when they are, say, 50 years old and have a reasonable 401k.

But with all the class warfare going on, many would disagree with you.

As far as the 50 year old retiring, I know a guy who did quite well until 2008 when the crap hit the fan. He is 70 years old now and has to work.

Honestly, he lived off the interest and never touched his principle and had a pretty good life for a while.

 

[Penumbra]

But with all the class warfare going on, many would disagree with you.

A society can't be maintained if the income gap grows exponentially.

So for those waging class warfare, they could just stop. Those that keep wanting to cut the programs to the other class, like social security, tuition support, health care programs, etc.

As far as the 50 year old retiring, I know a guy who did quite well until 2008 when the crap hit the fan. He is 70 years old now and has to work.

Honestly, he lived off the interest and never touched his principle and had a pretty good life for a while.

Any specifics? How much wealth, and what was it in?

 

[Reverend Rick]

A society can't be maintained if the income gap grows exponentially.

So for those waging class warfare, they could just stop. Those that keep wanting to cut the programs to the other class, like social security, tuition support, health care programs, etc.

Any specifics? How much wealth, and what was it in?

He had his house and cars paid off and around a million in his IRA. He got a settlement of about 350,000 when he took his early retirement.

The problem was he was invested in risky stocks that where paying around 38% before 2008. Then he made another goofy mistake and got out of the market and did not recover his losses.

His IRA is less than half of what it was and I believe he still has not spent his severance pay.

He is in bonds and utilities now.

His job pays his insurance and taxes and he has had numerous medical expenses over the years.

 

[Penumbra]

He had his house and cars paid off and around a million in his IRA. He got a settlement of about 350,000 when he took his early retirement.

The problem was he was invested in risky stocks that where paying around 38% before 2008. Then he made another goofy mistake and got out of the market and did not recover his losses.

His IRA is less than half of what it was and I believe he still has not spent his severance pay.

He is in bonds and utilities now.

His job pays his insurance and taxes and he has had numerous medical expenses over the years.

Two million or so in retirement years is comfortable, not wealthy. Investing in stocks that pay a 38% yield is incredibly unwise, and so is exiting the market during a market bottom.

Sounds like a case of a middle class man making poor investment decisions; not an argument to support lower taxes for investment income (especially since in his case, it was in an IRA).

Investment income should be progressive like everything else. A tax shelter in the form of an IRA provides some helpfulness, but outside of that, a middle class person will pay the same dividend tax rate in in their taxable brokerage account as someone who has 1,000 times as much dividend income.

 

[Magic Man]

Nobody pays anyone more than their worth for very long or they go broke.

The top 1% is worth every penny where the 20,000 dollar guy is lucky to even have a job. If this person is so under paid, why not find a better job, learn a trade or go back to school and make something of themselves instead of expecting to be a mediocre employee making excellent pay?

Wow...I don't even know how to respond to this. This is the most ridiculous thing I've ever heard. So, Paris Hilton is worth millions, while an elementary school teacher is only worth $40,000? Really?

 

[Magic Man]

Probably not.

I believe that everyone should be paying SOME federal income tax.

Then I guess we're not OK. I agree with your earlier statement, not this one. When you qualify it with "if they are at all able to", then it makes sense. What doesn't make sense is expecting someone trying to live off of $15,000 already paying payroll, state, sales, SS and Medicare taxes to pay federal income tax of 5-10%, too. It's pointless and silly.

When someone has made an investment into a system, they are more likely to see and appreciate the value, and to demand more responsibility from those who they vote in to safeguard that system.

I understand; I've heard this countless number of times. The problem is two things:

1) As outlined above, those people are already paying into the system.

2) If they're not paying into the system at all, it's probably because they're not even making enough to survive.

 

[Magic Man]

I'm sorry, but I don't believe that 50 percent of US citizens cannot afford to pay any federal income tax. I don't see a 50 percent poverty rate.

91 percent of Americans have a cell phone
99 percent of Americans have a television
53 percent of Americans have a big screen TV
More than half of US households have THREE OR MORE televisions
74 percent of Americans have internet access from home
70 percent of Americans regularly play video games
54 percent of American homes have at least one gaming system
The average American eats out five times a week
Americans own an average of 2.28 vehicles per household
68 percent of Americans are overweight or obese
25 percent of Americans own their home WITHOUT a mortgage
57 percent of Americans have a degree or some college education

Don't ask - I'm not going to post all these sources. Just google each stat and you'll easily find them.

Actually, I'm having a bit of trouble. Can you give me a good source for, say, the 99% of Americans own a TV one? We'll start there and move to the other ones.

 

[work in progress]

Wow...I don't even know how to respond to this. This is the most ridiculous thing I've ever heard. So, Paris Hilton is worth millions, while an elementary school teacher is only worth $40,000? Really?

Exactly! Back in the 80's, when CEO salaries first started taking off, the excuse from the business commentary hacks, was that new technology was making the job of chief executive more difficult, and companies had to offer greater rewards to get the best ones. No one seemed to point out that the argument of greater technical ability was undone by the shrinking length of time that executives stay with the same company! The modern big time CEO is a mercenary, paid to step in and bump up share values in the near term -- and then they run off after they've taken advantage of their stock options to raid another company. And, even when they put the company in the red, their generous contracts allow them to still get paid. Blame it on the incestuous relationship of the directors and the people at their country clubs that they hire; but it's not until there is a major shareholders revolt -- like what's going on with Murdoch right now -- that the ridiculous executive compensation scheme gets questioned.

As for Paris Hilton -- I think she is more of a tool than a clearly malevolent force that some of the trust fund babies are in this world. She is only interested in nightclubs and homemade porn videos, so her main crime is serving as a brainless idiot promoting a toxic pop culture. But, other children of the rich, such as Steve Forbes and G.W. Bush, have actively worked to reduce inheritance and investment taxes to maximize their unearned wealth.

But the Godzilla and Gamara of trust fund babies has to be the Koch Brothers! They have not only started up the modern conservative ideology through creating their own conservative think tanks to saturate all media -- they are the two men most responsible for the fact that no action has been taken to stop the increasing levels of man-made greenhouse gas levels through their sophisticated funding of so-called "skeptic" climate think tanks, and supporting an army of pro-oil/anti-green technology lobbyists in Washington. Sometimes they receive setbacks -- such as a recent Koch-supported scientist who ended up confirming the results of other studies on rising temperatures. And we may discover their greatest crime of all, if Henry Waxman is able to investigate the Koch connection behind the scheming for the Keystone XL Pipeline.

These people are the greatest argument for progressive taxation of inheritance wealth that ever existed!

 

[Reverend Rick]

Wow...I don't even know how to respond to this. This is the most ridiculous thing I've ever heard. So, Paris Hilton is worth millions, while an elementary school teacher is only worth $40,000? Really?

Paris is worth millions because her father owns hotels around the world. If not for her rich daddy, I would say Paris might just be a great candidate for a bag lady in light of her work ethic.

I know some elementary teachers who banded together and have a nice portfolio of rental properties collectively. I would say they are worth a little more than 40 grand.

Some folks have a hard time wrapping their minds around worth. You can go out and buy a 40 grand car and drive it around the block and it might bring you 31,000 if your lucky.

You could buy real estate in Florida for seven figures a few years back and be lucky to get half of that now.

I'm sure there are professional athletes who where used to making millions in the past who now might make half a teachers salary out there.

Things are worth what people are willing to pay for them plain and simple.