Archive for the 'Economic' Category
September 28th, 2011 by Justin
Continuing from part 3, on why the rich are taxed less than everyone else.
6. Corporations and businesses
The largest business firms in America are in a position to exploit countless loopholes and exemptions and deductions, as well as lobby for and legislate new ones, that small and medium-sized businesses will never be able to enjoy. The proof is in the pudding; again, see the GE story. In addition, note that at the highest levels of corporate income, not only do the merely rich and the mega rich pay the same (see number 1), but there is actually a regressive phenomenon. Specifically, according to SMBiz.com, instead of going up, as a corporation increases in income, the tax rate goes up, then down, then up, and then down! Here are the corporate tax rates:
Taxable income over Not over Tax rate
$ 0 $ 50,000 15%
50,000 75,000 25%
75,000 100,000 34%
100,000 335,000 39%
335,000 10,000,000 34%
10,000,000 15,000,000 35%
15,000,000 18,333,333 38%
18,333,333 .......... 35%
We can see that a corporation that makes $5 million in taxable income actually pays a lower tax rate (34%) than a corporation making only $200,000 (39%)! And moreover, the corporations at the highest income levels–$20 million, $100 million, $10 billion or more–are subject to a rate of only 35%, while those orders of magnitude lower (such as $17 million) must pay a higher 38 percent. Extraordinary but true. The same rules apply as far as influence peddling and lobbying: the biggest corporations can do it, and they do it in spades, while small and medium-sized businesses (where most of the jobs and economic production comes from) simply do not have the resources or the money to do that. The biggest firms are able to take advantage of loopholes and exemptions so much that the actual tax rates themselves have become all but meaningless for them (but still relevant to everyone else). Obviously business owners that own the biggest companies get off far easier than those who own average businesses.
September 27th, 2011 by Justin
Continuing from Part 2, reasons why the rich are taxed less than everyone else in America.
5. The rich spend less and save more
It is a very common observation in economics that people with greater incomes tend to save more of their money. This is true not just in absolute terms, but in proportional terms as well: the rich save a higher proportion of their money than the poor; and in the same way, the poor spend a higher proportion of their money than the rich. “Saving” in economics includes actions referred to as “investment” in common parlance, as well as normal saving. This means that the rich enjoy an overall lower tax burden than the poor or middle class. A greater proportion of their money goes into saving and investment vehicles that are taxed much less, or not at all. Capital gains taxes are a prime example of this.
September 26th, 2011 by Justin
Continuing from Part 1, reasons why the rich are taxed less than everyone else in America.
3. The rich enjoy outsize influence over the government
The wealthiest Americans enjoy significant influence over the political and legislative process. They are able to nudge policy in this or that direction through their campaign donations, influence peddling and lobbying. The senators, representatives, department heads and other major national political leaders are themselves very rich, and are thus cut from the same social and economic cloth. It stands to reason that they would take liberties here or there to write tax laws favorable to themselves. This helps to explain why the American tax code is so damn complicated, confusing and impenetrable.
4. Capital gains taxes and similar taxes
The rich derive a greater proportion of their income and wealth from capital gains than the middle and lower classes. Capital gains are taxed at a much lower rate of 15% than “normal” income. Thus even if a person makes $2 million in a single year from a capital gain, he will only need to pay the tax rate of someone making $10,000 income on that money. Money is money, and no matter where it comes from, it should be taxed the same. The reason the capital gains tax (and several other taxes that similarly apply only to the wealthy or very wealthy) is so low relative to the income tax is (see number 3 above) because of influence peddling as well as the legitimate desire of the politicians to incentivize certain behaviors. Unfortunately, the only behaviors they ever seem to incentivize are those pursued by the wealthy.
September 25th, 2011 by Justin
On the surface, it may seem that the rich in America pay more in taxes than the middle class or poor. And technically, this is true. The tax code applies higher marginal income tax rates the further up on the income scale one gets. But this is only half the story.
There are several key factors that those who argue that the rich are taxed enough, or too much, fail to realize. Stephen Ohlemacher’s so-called “fact check” misses all of the facts listed below.
1. The merely rich and the mega rich are taxed at the same rate.
Perhaps the most obvious and interesting problem with the tax code is that the same income tax rate applies to those in the upper middle class and those at the highest incomes. This is plainly obvious to a casual observer, but is almost always missed by the experts and the pundits pontificating on these issues. Money Chimp provides basic tax rate information. The marginal rates for 2011 are 10, 15, 25, 28, 33 and 35% for increasing income levels. The 35% rate begins at those earning $379,150.
Since 35% is the highest tax rate on the books, this means that a person earning $400,000 pays the same tax rate as a person earning $4 million! And the same as a person earning $40 million, or $400 million! So we see that even with income increasing by orders of magnitude, the marginal income tax rate stays the same.
As one moves up the income scale, from $10,000 to $30,000 for instance, or from $30,000 to $90,000, one will feel an increasing tax burden. But then, after a certain point, there is no increase. As one becomes richer, one’s tax rate does not go up. This is a key element of inequality and unfairness in the tax code. And very few people are aware of it.
2. The rich benefit from high-priced accountants and attorneys who can minimize their tax burden
Although technically many people can take advantage of various exemptions and deductions in the tax code, it is the upper classes that are best prepared to exploit them. They are able to pay the best accountants and tax lawyers to investigate the tax code and squeeze every last drop of value out of their tax return. Middle and lower class people don’t have a chance to compete at the same level. This helps to explain why GE, a multibillion dollar corporation, was able to get away with paying little or no taxes at all for years.
April 27th, 2011 by Justin
The IMF recently made a prediction that the Chinese economy, in total size, will be larger than America’s in a matter of years. In fact, the shift is so close that “According to the IMF forecast… whoever is elected U.S. president next year — Obama? Mitt Romney? Donald Trump? — will be the last to preside over the world’s largest economy.”
Regardless of the specific year, it seems clear to even the casual observer that China will be the largest economy sooner rather than later, given the significant differential between the two countries’ economic growth rates, to say nothing of the ongoing economic slump that continues to hamper American dynamism. Even in normal times, whereas the Chinese economy regularly attains 8 to 10% annual growth rates, America can only muster 3 to 4%. The long-run effect of those extra percentage points, year after year, is dramatically demonstrated in this chart, showing total accumulated growth over time:
Accumulated GDP growth for selected countries in recent decades
While China is in a league of its own, the United States lies more or less in the unremarkable middle of pack.
The great success of China portends a global shift of historical proportions. For decades the established wisdom in much of the world saw democratic capitalism as the only real option for delivering economic prosperity. This was confirmed upon the fall of the fascist states in the 1940s, and then reconfirmed by the implosion of Soviet-led communism in the late 1980s and early 1990s. Now there is a new game in town, often termed “authoritarian capitalism.” Recognizing the failures and unworkability of communism as an economic system, authoritarian capitalism embraces private property, market exchange and profit while nevertheless maintaining faith in the direction, discipline and stability imposed by the state.
For third-world governments, the Chinese model provides a compelling alternative to the often chaotic and unmanageable “freedom squared” approach promoted by the democratic west: freedom in economics, multiplied by freedom in politics. This combination has proven toxic many times across the developing world. It has resulted in meager gains or even shrinkages in prosperity in places where civil society, institutions and the rule of law are not well-established, as they have been in the west for centuries.
For decades third-world nations borrowed ideas from both the democratic capitalist first world and the totalitarian communist second world. With the latter now irrelevant, the emergent Chinese model offers a compelling, workable and relevant alternative for poor societies in need of state-guided economic development.
As China becomes the most important economy, the US and its international brethren must continue to support the expansion of democracy and market capitalism, but it must do so in a reasonable, pragmatic way that accounts for the limitations, shortcomings and economic needs of impoverished societies. Otherwise, true democratic capitalism will have had a very brief time in the sun.
