Sunday, December 09, 2012

Soak the rich.

You know what the problem with soaking the rich is?  We're soaking the wrong ones.  Hedge fund managers take almost all of their income in cash.  Consequently, we tax that income more heavily than we do others who take their income in other forms.  Celebrities, for example, take much, if not most, of their income in social status and self-actualization.  When the Beatles were paying a 95% tax rate, they were still performing.  By contrast, as Britain has recently discovered, a rate of 50% was ineffective at raising revenue from run-of-the-millionaires.  Other than ticket sales, it's rather difficult to tax legions of adoring fans directly.  However, most celebrities would continue to produce and perform just for their art and their status.  In other words, celebrities are inflexible suppliers.  Consequently, they can be taxed heavily with minimal impact on the total supply of entertainment. Tax the rich, but take a broader view of income and soak the celebrities.


Blogger Yoel Natan said...

The UK losing net tax one year due to rate hikes and the rich moving money only means the Brits have to do more homework to capture more "revenue." That's because for decades, conservatives in the UK and US have made it easy for the rich to evade taxation, all the while claiming that low taxation was necessary to stem tax evasion.

Republicans since the 1980s have allowed corporations to restructure themselves so that they pay no corporate tax, but instead the investors pay the tax. It used to be only 24% of corporations were non-taxable, but now 66% are. In addition, there are a plethora of non-profits that barely give out any charity but exist solely to pay their execs 6 and 7 figure salaries (i.e., sinecures). For instance, I heard Thrivent has over 20 execs making a million each year. The IRS finally had to make a rule a few years ago that NPOs had to pay out 5% of their worth per year to remain NPOs, since NPOs ought not exist just to enrich people.

Corporations have taken the non-tax route because investors are only taxed 10% to 15% on capital gains, which is lower than the corporate tax rate, and also the rich can defer tax payments on stock options, and only cash them in when the govt gets the least take, which is why this is a big way they get paid now in addition to salary and benefits. The rich can also take advantage of many tax loopholes and deductions normal people can't, and probably never heard of. For instance, Romney can write off his wife's entertainment with horses and dressage horses as a business expense, and that contributes to his paying between 9% and 14% tax, though he claims he always pays 14%. Baloney! He purposely didn't claim the charitable deduction on his 2011 return so he could claim he was paying 14%. (Would be Senator Thompson of Wisconsin similarly claimed to pay 31% per year. That's not even possible given what people know about Thompson's investments.) Now Romney will surely put in an amended return to get a refund, and that will put him at 9%. The Mormon Church would never allow him to over pay his taxes instead of giving that to the Mormon Church, and any Mormon who wants to be a god in the next life has to turn in their tax returns to the Mormon church to be admitted to the temple ceremonies.

Thus, we must go back to the old system where corporations in America pay the tax directly to the govt before cutting checks to investors, so the rich have no opportunity to take the money to tax havens. Also, Americans need to step up going after tax evaders, and fortunately the Germans and others are getting tougher, too, and the Germans openly opine that they wish their govt was as tough on tax evaders as Americans, though Americans have much room for improvement:

Some experts say that Berlin should follow the American example instead and take a hard line with Swiss banks who help their clients avoid tax. By SPIEGEL Staff

In 1986, about 24 percent of corporations were what's known as nontaxable businesses -- meaning the companies themselves pay no federal income taxes -- instead passing on the earnings to individual investors to pay taxes on. By 2008, these businesses accounted for about 69 percent of all corporations, a designation that can save companies hundreds of millions of dollars in a single year

12:46 AM  
Blogger Octavo Dia said...

I'm of the opinion that the rich (and corporations) are far better and more nimble than the government. All tax regimes face declining revenue as those with the incentive to do so find ways around it. You can face this in one of two ways: either repeatedly change the tax code or ensure that working on tax management is a worse investment than working on actual things.

9:58 PM  
Blogger Noumenon said...

So I was thinking about this, after taking a detour into height taxes and a list of high status occupations, then I thought "What about people who take part of their income in good weather, such as people who move to California?" Then I realized that Megan McArdle's statement about the height tax is kind of relevant:

We already have a very good proxy for earning extra income, which is . . . the extra income. Presumably, the progressive income tax is already taxing the tall for being tall, while possibly also giving them discounts for other conditions that have lowered their earnings potential.

Isn't it possible that celebrity already pays less because you also get the adoring fans? It's hard to compare because there aren't exactly similar jobs that you could go into without the fans.

Well, I'm going to submit this now even though the CAPTCHA is a symbol that looks like Google Maps' orange map marker. Maybe it'll get through on the next try.

1:04 AM  
Blogger Yoel Natan said...

Octavo, you are just passing on tired cliches about taxing the rich that never made much sense, and are more outdated now than ever. First, all the tax havens of the world can only take in a few trillion dollars collectively before no one would trust them with any further money. That's why people would rather buy gold and silver than press their luck on tax havens. Second, countries increasingly have tax treaties to catch tax evaders, and Germany and other countries have bought CD-ROMs with banking information from tax havens for a few million dollars, and these net them billions in back taxes from tax evaders. Third, the EU just passed regulations to create an EU-wide banking supervisor, which will regulate the big banks, but can also take over any bank, and wind it down, if it senses any sort of trouble with it. No doubt they'd note repeated wire transfers to tax havens, and take action. That basically means there's few tax havens left in the world in which the rich can really trust with much money. Fourth, the economists no longer widely believe that the rich can evade taxes in the long term, but can only shield some of their money in the short term. Also, economists note that while low taxes gild the pockets of the rich, it doesn't lead to full employment or rising incomes for the rest of the populace, as the low-tax theory promised to do. Republicans came to power based on a pack of lies, and will go out of power as these lies are exposed empirically, by decades of economic data, which is the same thing as happened to the communists:
E.U. Leaders Hail Accord on Banking Supervision:
The Case for Raising Top Tax Rates:

But the new line of research has the potential to overturn contemporary thinking about government finances. And in one respect, it seems indisputable: three decades of tax cuts may have gilded the pockets of the rich, but they didn’t provide much economic juice. Among developed nations, incomes per person grew no faster in countries like the United States and Britain that slashed their top tax rates than in countries like Spain, Germany or Denmark, which did not. If taxes didn’t juice the engine of growth on the way down, there is little reason to fear they will stall it on the way back up....

Their study suggested the federal government could raise the top marginal rate to 76 percent without losing revenue if it closed all the loopholes to prevent taxpayers from reclassifying income on their tax returns just to pay less. The top tax rate could rise to 48 percent even if we kept the loopholes we have today, they found.

Perhaps the most controversial conclusion, made by Mr. Saez and two colleagues in another study published last December, is that while the rich would respond to a big tax increase by shielding income from the tax man and maybe working less, this would not slow the economy at all. That’s because a lot of what the rich do does not, in fact, generate economic growth. So if they reduced their effort in response to higher taxes, the economy wouldn’t suffer.

4:34 PM  
Blogger Octavo Dia said...

@Yoel - I would recon that the tax dodges you've heard about are the one they thought up 15 years ago that have outlived their usefulness. As the saying goes, the scandal is what's legal.

6:28 AM  

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