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How Much Is Enough?

I caught a little bit of a discussion about Barack Obama's tax proposal recently. One element is raising the tax rate on the top bracket of income taxes from 35% to 39.6%.

That's an awkward number, derived from a 36% rate raised by 10%. Let's call it 40% -- it's not that big a difference, and it's an easier number to work with. And the floor for that tax rate, as I understand it, is $250,000 a year.

So, let's presume that you just make enough to qualify for that tax rate. You pull down $250,000 a year at your job. Just what does that mean, to you?

It means that you will pay $100,000 a year just in income taxes. It'd be cheaper to go buy a brand-new Mercedes S-Class sedan and shove it off a cliff.

It also means that every week, when you go to work, your entire paycheck for Monday and Tuesday go straight to Washington. You only get what you make on Wednesday through Friday to live on -- as well as paying all the other taxes.

Or, if you prefer, you spend every day through most of May every year just paying your federal income taxes.

I have some very devout friends, some very seriously Christian folks. For example, my friend Candy. She, like most of us, has occasionally run a bit short of money. Regardless, she and her family always make sure they give to their church.

Candy says that the Bible asks that we give 10% of what we make to the Church.

Under Obama's plan, the government is four times greedier than God.

So, that leaves me wondering: just what should be the maximum tax rate?

Back in the 1950s, the top tax rate was 90%. (I remember Colonel Tom Parker, Elivs Presley's business manager, was quoted as saying he saw his duty as to keep Elvis in the 90% tax bracket.) I'm questioning whether the government is entitled to take all you make on Monday and Tuesday; at one point, some folks only worked for themselves on Friday afternoons -- and we all know how much work gets done on Friday afternoons.

There are very few folks who would argue for a return to the 90% tax rate. (And they're all Obama supporters, by the way.) But what should be the maximum rate for income tax? What should be the most that the government can demand of people from their income?

I'm no economist, I'm no serious student of government and economics and whatnot. So when it comes to matters like this, I tend to just go with my gut and find a nice, simple, elegant solution.

So I say 33%.

A nice, simple, third. You make three bucks? You give the government one of them. That's still a smidgen high for my tastes -- I'd like it down to a quarter, because it's more readily divisible, but I can live with 33% as the top tax rate. (Lord knows I'm not likely to make enough to qualify for the top tax rate any time soon -- or ever.)

If anyone would like to propose a higher rate, and explain why they think the government is entitled to take more of your money than a third right off the top, please do so in the comments.


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Comments (36)

Why not have a flat 10%, wi... (Below threshold)
Allen:

Why not have a flat 10%, with no deductions for a income tax? The government would collect more money, yet most people would be paying less in taxes.

And any person caught with a overseas account that isn't reported would lose all the money in that account. Sounds fair to me.

Jay:First, a 40% t... (Below threshold)
Bob:

Jay:

First, a 40% tax rate at $250,000 is a marginal rate. Thus, a person making $250,000 would pay much less than $100,000 in taxes. It would be accurate to say that a person making $350,000 would pay $40,000 more tax than someone making $250,000, because the last $100,000 would be fully taxable at the highest marginal rate. Second, even if the federal rate were a flat 33% on all taxable income, many states and even some local governments (e.g., NYC) also levy income taxes, so that most of us still wouldn't be able to keep 2/3 of our earnings.

The principle should be that people have a right to their earnings and the government should not take more than it "needs." The problem with that is that our representatives continually think of new programs so that the government always "needs" more of our money.

While I favor keeping and adding to the Bush tax cuts, this will only truly benefit our country if we also adopt corresponding spending cuts, rather than just continuing to build larger deficits each year. Despite what our leaders would have us think, there is no free lunch. Because good economists point out this fact, economics is called "the dismal science."

While I agree with the main... (Below threshold)
Brian The Adequate:

While I agree with the main thrust of your argument J, you do have one minor error. Because our tax rate is a marginal rate system, someone making $250,000 will not pay $100,000 in taxes. Only dollars 250,001 and above are taxed at 40%, dollars 1-250,000 are at the lower rates.

Either way though, the big problem we have now is that as a democracy, it is VERY dangerous to have more than 50% of the population essentially paying no net taxes. When the majority can continually pull for more goodies with no price to themselves...........well it was a nice civilization while it lasted.

Too many on the left view s... (Below threshold)
GianiD:

Too many on the left view success as 'luck', and they view 'taxes' as punitive, and, the subsequent handouts, as 'equalizers' to those less 'lucky'.

I really could care less what someone else makes, and what someone else pays in taxes, thats their business.

US tax revenue was at record highs over the last few yrs, so, we dont need more in income. What we need is less spending. We also need to do away with Omnibus bills, and other methods in which Congress can hide pork. 1 bill, 1 vote, no matter how long it takes. The lazy bastards in Congress need to start working a 47-52 week a year work schedule anyway, like everyone else.

A flat tax is fair for all, equal protection amendment covers this I believe.

I don't think there's an ar... (Below threshold)
Oyster:

I don't think there's an argument, really, over whether or not Obama prefers higher taxes. He just doesn't thing they should go up too fast. The 39.6% is part of that strategy. It sounds better than 40% - for now.

"If anyone would like to pr... (Below threshold)
JoeC:

"If anyone would like to propose a higher rate, and explain why they think the government is entitled to take more of your money than a third right off the top,"

Because, really Jay, it is so simple that we all can understand:

"From each according to his abilities, to each according to their needs."

That is so simple. Why don't we all start confronting the issue and call income redistribution (the polite term the economists call it) what it really is:

SOCIALISM

Not thing - *think*<p... (Below threshold)
Oyster:

Not thing - *think*

Dammit.

How much should the rich pa... (Below threshold)
JLawson:

How much should the rich pay?

Their Fair Share - WSJ.com
.
The nearby chart shows that the top 1% of taxpayers, those who earn above $388,806, paid 40% of all income taxes in 2006, the highest share in at least 40 years. The top 10% in income, those earning more than $108,904, paid 71%. Barack Obama says he's going to cut taxes for those at the bottom, but that's also going to be a challenge because Americans with an income below the median paid a record low 2.9% of all income taxes, while the top 50% paid 97.1%. Perhaps he thinks half the country should pay all the taxes to support the other half.
Guess it depends on your definition of 'rich', doesn't it?

Jay:<a href="http:... (Below threshold)

Jay:

Here's a post I did on the topic a while back, after reading a typical classist MSM report from an AP reporter. In it you'll find the information that Americans generally think that 30% - including all federal, state and local taxes! - is the most that anyone should have to pay.

I'd go for that.

1)A straight 15% flat tax o... (Below threshold)

1)A straight 15% flat tax on all individual income, which would include investment income and capital gains. Eliminate deductions.

2)Eliminate the corporate tax and allow all net income to flow through to the shareholders.

As an example, consider the greedy, evil corporate beast Exxon, which presently pays close to half of its operating profit to the government in taxes. In 2007 that amounted to $27,000,000,000 in taxes that otherwise could be distributed to shareholders, who whould then pay 15% of that amount in taxes.

When the Reagan tax cuts took effect the GDP was 3.2 trillion. Today GDP is 13.8 trillion (not inflation adjusted). In 1981 the dow was below 1000. Today it is above 11,000. All of this growth happened concurrently with a significant drop in marginal rates.

This is called wealth creation, a concept that is anathema to the progressive tax confiscators (and there are more than a few Republicans among them).

Voters should study these links before casting their vote:

http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=5&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=1980&LastYear=2008&3Place=N&Update=Update&JavaBox=no

http://moneycentral.msn.com/investor/charts/chartdl.aspx?D4=1&ViewType=0&ComparisonsForm=1&D5=0&Symbol=%24INDU&CE=0&ShowChtBt=Refresh+Chart&DateRangeForm=1&D3=0&C9=2&DisplayForm=1&CP=0&PT=11

By the way, I'll second Gia... (Below threshold)

By the way, I'll second GianiD's thoughts about 1 bill, 1 vote. The omnibus bills simply are lazy, and hide behind the scenes horse trading by the horse's patooties in Congress, using our money.

I think you are all serious... (Below threshold)
jpm100:

I think you are all seriously underestimating Obama. You don't give him enough credit.

He's about change. He isn't simply an industrial strength Democrat. He isn't simply going to dial up the tax rates on new earnings.

I would be more concerned about Obama introducing a Property Tax on everthing you own. From your house, to cash in the bank, to your 401(k).

And of course, it won't be a high rate and will have a relatively high cutoff at first. Dialing up the rate and dialing down the cutoff come later.

Here's an eye-opening exerc... (Below threshold)

Here's an eye-opening exercise that I'll bet not one in 10,000 Americans does.

Take your income tax liability. Add to it your FICA taxes. Add the FICA taxes in again, unless you're self employed. (That is money that your employer is compelled to pay the government when it hires you; it would thus be available as compensation if it weren't taken by the government. Seld-employed people, who pay both halves of FICA, understand this.) Add in your property taxes. Add in your sales tax -- you can use the IRS-approved deduction amount or estimate it).

Divide the total by your income.

What did you get?

Over the last 10 years, with a gross family income of between $100,000 and $200,000, I find that I've paid about 35% of what I earned in taxes.

Then remember that that's money the could have been used to provide for my retirement, save for my son's education, take a trip, buy a car, improve the house, etc.

I'd like to see a flat 10% ... (Below threshold)
GarandFan:

I'd like to see a flat 10% rate. The Feds, the state and the locals can fight over how to divide it. That's all they get, they can't spend anymore. Less government is better government.

A flat tax with no deductio... (Below threshold)
tyree:

A flat tax with no deductions would free up thousands of federal, state and local tax auditors to find real jobs. I would say that a top rate of 10%-15% would work. And everyone should pay. The rich, middle class and poor. The idea that being poor means you get stuff from the government for free leads to more poor. When people get to keep more of what they earn, they have more incentive to earn more.

<a href="http://www.fairtax... (Below threshold)
Gmac:

http://www.fairtax.org

The Fair Tax Plan, no one can duck it and it would remove politics from controlling behavior through taxation.

I've been a supporter of th... (Below threshold)
JLawson:

I've been a supporter of the Fair Tax for quite a while - and what's amusing to me are the folks who go "There's economists who say it won't work!" and proceed to recommend even higher taxes... like higher taxes alone (well, along with additional government spending) are sufficient to make our country a better place!

We've tried higher taxes. We've tried a more complex tax code - to the point where even the IRS hasn't a handle on it. We've got such an arcane structure the average man can't make sense of all the loopholes and pitfalls, and we need a virtual priesthood (specialists in the tax code) to interpret things.

Why not try something simpler? And I don't mean a "How much did you make? Send it all to the IRS" approach, either!

If 'Fair Tax' is just a fla... (Below threshold)
hyperbolist:

If 'Fair Tax' is just a flat tax on consumption, then it shifts the burden disproportionately to working class and poor people. You might think that's fine, and perhaps most people would agree that it is, but cast the debate in honest terms.

Hyperbolist -Check... (Below threshold)
JLawson:

Hyperbolist -

Check out the Wiki article on the Flat Tax, and note the concept of the "prebate".

It's really hard to charge this is a burden on the 'working class' when they'll be getting money from it.

So cast the debate in honest terms yourself, Hyperbolist - and actually look at the concept instead of what your talking points say about it.

http://en.wikipedia.org/wiki/FairTax#Monthly_tax_rebate

It's eminiently 'progressive' (in the good sense) as in the more you spend above a certain level, the more tax you pay. A couple with a child would get $468 a month prebate to pay their tax.

Correction - "Fair Tax", no... (Below threshold)
JLawson:

Correction - "Fair Tax", not "Flat Tax".

Come to think of it, Hyperbolist - it wouldn't even affect you. Sorry about that... maybe you can get the Canadian government to give this a try.

What we should do, is start... (Below threshold)
Stan25:

What we should do, is start a petition drive to repeal the 16th amendment to the Constitution entirely. This would do away with the need for the IRS. The amendment was foisted off on to us by the international banking cabal, that also gave us the Federal Reserve. Notice that none these people have paid one red cent into the tax system since they forced us to start paying this hideous thing. Yes, Woodrow Wilson went along with this scheme by signing the legislation to start with. Prohibition was repealed by this method, in spite of the resistance of the Congress.

John McCain says, "On Socia... (Below threshold)
Dave:

John McCain says, "On Social Security, he [Sen. Obama] wants to raise Social Security taxes. I am opposed to raising taxes on Social Security. I want to fix the system without raising taxes."

This is what the Wallstreet Journal says regarding McCains statement,

"Is John McCain Stupid?"

"Is John McCain losing it?"

http://online.wsj.com/article/wonder_land.html

Before you can ask what the... (Below threshold)
Lisa:

Before you can ask what the highest tax anyone should pay, perhaps it should be asked "What do you want your government to do for you?" If you want "free" healthcare, education thru college, day care money, housing assistance etc, then your tax form should have a box to check for such things and then you have a corresponding tax rate on your income - say like 55%. If you desire less from your government, say roads, national security, food chain safety, etc than you check a corresponding box and pay less - say 15%. 15% would be a minimum for all. Maybe if people had to pay for the "free" gov't handouts than people would be more engaged and thoughtful about the process.

Jay,at last I found some ag... (Below threshold)

Jay,at last I found some agreement with you this week. I'm skitish as well at any proposals to raise taxes on those in millionaire brackets, because it is such persons who start businesses, give jobs to others or create other fuel for a growing economy.

Fairness is one thing, but any "Robin Hood" philosophy to solve every problem doesn't always work. However, how to close the massive federal budget deficit will getting the economy back on track requires some serious thought.

Closing the federal deficit... (Below threshold)

Closing the federal deficit is not complicated, it simply requires some restraint which is something the Republican congress would not do. The Bush tax cuts increased revenue significantly but congress went on a spending spree that cost the Republicans control in 2006.

The voting core of the Republican base will not turn out for a congress that is Republican in name only.

There is always 1 joker who... (Below threshold)
GianiD:

There is always 1 joker who'll always inject how some tax change shifts the burden to the poor.

The poor barely pay any taxes, and I for one want them to start paying their fair share, which they've never done, in my adult life anyway.

Unless and until the lower income classes pay a higher rate, then no one with a brain or a clue can claim the burden is shifted to them. As it is, the burden is shifted unfairly to those who have studied, prepared, sacrificed, and worked, some as many as 25-30 years to be able to earn what they earn.

Maybe instead of brackets t... (Below threshold)

Maybe instead of brackets they could do a constant curve, like 0-whatever percent. We'll just use Jay's number of 33%. Just divide 33% by 250,000, and whatever dollar amount you made would set your 'bracket.'

When you throw in the 'earn... (Below threshold)
Scrapiron:

When you throw in the 'earned income credit' you will find that no one Hussein O is proposing to 'cut' taxes for pays one dime in federal income taxes today. Fact is they get thousands more back than the code shows as their tax libality. Having $2-3,000 withheld (by claiming 0 dependants) and getting back $5-6,000 is common. They let the government use the $2-3,000 interest free just to get back a large lump sum in the spring. They look at it as a summer vacation fund they would have wasted if they got it weekly. I know several who practice this all of the time. He proposes the tax cut because someone told him to do it (he's not that smart) to snow the public, an easy job on democrats, half of which are on welfare and have drawn thousand of dollars while paying zero in.

I think it would be interes... (Below threshold)
Rance:

I think it would be interesting, or at least worth a few laughs, if both the candidates would put out a sketch of what their first budget would be. They don't have to go into much detail, maybe just the dollar amounts for each of the cabinet departments. That and an accounting of where they plan to get the funds, and what sort of GDP they are using as a basis for their numbers.

While its nice to talk abou... (Below threshold)
Don Poole:

While its nice to talk about what a President Obama would do to the tax code, other than let the Bush tax cuts sunset, Obama would have little control or even input into a new revisions to the tax code if his coattails bring in a large Democratic majority in both houses of Congress.

The Democrats in Congress would go wild: major tax increases, more impeachment hearings, more investigations, and more grandstanding for their loyal acolytes in the press. It will be so mean, petty and vicious that the "World's Greatest Deliberative Body" will look like it was relocated from some banana republic.

At least the petty politics of the Democrats will so sicken the American people that 2010 will be good for the Republicans as it was in 1994.

Only this time, I hope that the adults of the party take and keep control when they are in the majority.

A nice, simple, th... (Below threshold)
_Mike_:
A nice, simple, third. You make three bucks? You give the government one of them.

I wouldn't use *give*. I'd suggest that a more apt phrasing would be.

"You make three bucks? The government takes one of them."

My point is simply that government has the first claim to the fruits of your labor and that you only have second claim.

Yikes. This thread has more... (Below threshold)

Yikes. This thread has more straw men than a corn field.

Flat tax. You would have t... (Below threshold)
Ryan:

Flat tax. You would have to figure out the exact amount. The amount up to the poverty line is exempt, for everyone, rich or poor. There are no other brackets above that, all taxes are exactly the same.

Second change would be to a... (Below threshold)
Ryan:

Second change would be to abolish withholding. If people had to actually write a check for their taxes each year, representatives and senators would be hanging by their underwear from a flagpole.

Your tax estimate is mislea... (Below threshold)
DL:

Your tax estimate is misleading as it is a progressive tax rate. The $100,000 tax you projected is based upon the marginal tax rate and not the effective tax rate.
You have accounted for none of the tax deductions that someone in that income bracket is likely to have. My guess (from 33 yrs of experience) is they are likely paying in the area of $50,000 in taxes.

Except it real life, if you... (Below threshold)
Ryan:

Except it real life, if you ask the IRS, that isn't the case, personal experience or not. DO you think the top fifty percent should be paying 96% of income taxes?




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