$100k to $200k in the usa today is middle class, not rich.

Huh? The lower limit of the top 5% of household incomes in 2003 was $173,000. Being in the top 5% doesn't sound very "middle class" to me.

In contrast, four times as many households earn less than $24,700 per year. Are they middle class too?

I meet people living in mansions who call themselves "middle class"; and I meet families struggling on $16,000 per year call themselves "Middle Class - particularly if they are white. What exactly does the term mean anymore?

"Consider Bill Gates. He started Microsoft as a college dropout and has become the world's richest person. Though he has undoubtedly benefited from his unusual intelligence and business acumen, he could not have created or sustained his personal wealth without the common wealth."

Bill Gates is a particularly bad example to use. His company Microsoft was found guilty on seven of the eight counts brought against it by the Justice department for engaging in monopolistic practices in 1999 or 2000.

Lobo Gris

Well put! Now we need to go beyond the "moral obligation" to a legal obligation. George Lakoff and Bruce Budner, I like the way you think. Not very many people will disagree with this argument (although I can think of a few). I'm sending this essay around.

Nowhere is this truth more apparent than in my home state of Pnnsylvania, whose constitution mandates a flat tax, currently at 3.07%. Local governments likewise impose a regressive flat tax, only on wages, no breaks, down to the first dollar earned. Highways are in bad shape and public transit is being decimated. Their solutions:

1) Privatization of the PA Turnpike.
2) Gambling Casinos
3) Giving in to big business and sport team owners with cuts to their taxes and expensive tax-leveraged facilities
4) Increase in the very-regressive sales tax
5) Slash public transit some more

In contrast, all the funding shortfalls could be solved in one swoop with a constitutional amendment to allow progressive taxation - hardly a radical proposal. But, because big business, the rich, and the rural neanderthals who love them run things over in Harrisburg, such proposals aren't even in the realm of the possible. So, infrastructure crumbles some more the poor and elderly continue to pay a greater percentage of their income in local taxes then the rich., and those same businesses getting the breaks leave anyway for a atate that groveled even lower...

Visit here for some good info on taxation from a non-right-wing point of view:
http://www.itepnet.org/

We need to go back to a truly progressive tax such as that before Kennedy, which, in today's dollars, could be something like: for income over $1 million: 90%, over $500K: 80%, over $250K: 70%, over $200K: 60%, over 150K: 50%, over 100K: 40%, and of course double the incomes for married couples. And close all the tax loopholes! And raise corporate taxes as well. And if the wealthy want to leave, let them, but nationalize their assets in the US. And penalize corporations that leave.

I am not sure that the people have to be pushed too much further by the criminals in Washington before they start working for this.

One thing that is never mentioned by the right wing when they moan about how much taxes they pay (or don't pay) is that the property which the rich get rich from - land, resources, processed resources etc - are appropriated from the rest of us.

Then there is the huge amount of subsidies they receive - from our tax dollars, which far outstrip the amount of taxes they pay. They are essentially paid to make their fortune by their cronies in government.

So it is time that they either pay taxes - and i mean the lion's share of the taxes - or we reappropriate all that stuff that they use in order to get corporate welfare. Taxing industry at source means that ordinary citizens instead of a massive tax burden could have a minimum guaranteed income.

PJD-

If you think your state is backward, try mine. In Texas, there is absolutely no state tax whatsoever. Sales taxes and property taxes are basically it. Highways are going to shit (large chunks are privatized now), the education system is in a race with Mississippi to the bottom of the barrel, and the welfare system is laughable. The situation is almost identical down here, with the redneck lumpen suckling at the teat of their bosses to fight any attempts to even HAVE a tax.

Affable,

The worst thing about sales tax is that for someone with a low income, who must spend most of their income on necesities, it effectviely IS an income tax. The worst is Tennessee, whose 7% sales tax applies to food, drugs, everything! In Pennsylvania at least clothes and shoes are tax exempt as well as groceries.

If you go to the ITEP site considering ordering their publication "Who Pays". In it you will find that in no-income-tax states like Texas and Tennessee, the bottom 20% pays nearly 12% of their income in state and local taxes, while the richest 1% pay only about 3%. But nearly all states punish their low-earning workers with higher taxes. The only state with the least bit of progressivity is Montana.

Of course the other side of unfair taxes is while robbing the working class, it doesn't even raise enough funds to support the infrastructre, and therefore, the economy - resulting in business fleeing the state. But by then, those businesmen who bought the state politicians in Harrisburg, or Austin or Nashville, are relaxing with a martini somewhere...

I'm not sure I totally agree:
1) Corporations (although probably not wealthier individuals as individuals) may make more use of public services than poor people but they also pay more in taxes even without progressive taxation. Even with a flat tax, if you earn more you pay more. The point that the US provides a public infrastructure which allows wealthy individuals to become wealth is well taken. This is certainly a reason to close tax loopholes and ensure that everyone pays taxes. On the other hand the innovation of people like Gates benefits everyone, including poor people by providing them with jobs. Take away the infrastructure and absolutely people will not innovate. Take away the incentive to innovate and you also dampen wage growth and create enormous poverty. This is empirically true. Countries like Ireland which have reduced taxes significantly have, on average, grown much faster and improved their per capita median and mean incomes.
2) Taxing the wealth is an illusion in many cases. In name corporations pay taxes but in reality corporations don't have income. All the "income" they do have is either reinvested, spent on purchases or given to employees, rich and poor. You tax corporations and shareholders and wealthy individuals will pay a share but employees, poor ones, will also take a significant hit. The money to pay has to come from somewhere, and if corporate managers are as greedy as everyone seems to think, you can bet they will find a way to make sure it comes from soneone else.
I understand that high taxes don't prevent growth. The US had very high growth rates during the Kennedy years, but this is sort of an anomoly sparked by a baby boom, high investment after world war 2. In the modern era the statistical relationship between growth and lower taxes is strong, while the relationship between high marginal taxes for the rich (for everyone really) and lower growth rates is strong as well.

DOKeenan,

I do not know where you get your statistics, but Clinton raised taxes and the economy improved in the aftermath. Some economists felt that it was because he brought the debt under control and that lowered interest rates and that low interest rates are more important than low taxes. And, as you point out, during the 1950s the US had very high tax rates and very high growth.

Economics is a social science, and like all social sciences, it is mostly guesswork. And the wealthy elite will always support economists who provide arguments that are consistent with interests of the wealthy elite, but for someone who is not wealthy, it makes absolutely no sense to trust them.

As for Bill Gates, he is brilliant at creating income streams that end up in his pocket, but all the technical innovation was done by people working for him, not by him. And in the last few years, the entire organization seems to spend most of its time trying to squash more innovative competitors.

For me it is this simple:

Tax someone making 10,000 at 10 percent, they have $9000 left to somehow make ends meet. Tax someone making 1,000,0000 at an bracket-average rate of say 50%, tehy still have a cool $500,000 to play with.

As far as taxes coming out of the worker, I don't see how that would work. Payroll is not paid from net income. It is one of the expenses that is deducted, along with all the other business expenses to yield the net business income (or pre-tax profit) - and that is what is taxed. So progressive tax bracketing is just as likely to cause a business to _increase_ it's payroll expenses if it can get deductions down to the next lower bracket - in fact this is sometimes one of the purposes of Christmas bonuses.

It works excatly like individual charitable contributions, which become increasingly cheap (literally uncle-sam subsidized) at higher tax brackets than lower ones - so that charitable giving actually increases if the upper tax brackets are increased. Same may apply to payroll in a lot of situations.

"..Bill Gates, he is brilliant at creating income streams that end up in his pocket, but all the technical innovation was done by people working for him, not by him."

And more than a little of the innovations he exploited, notably the internet, were developed by the US and other governments and government-supported universities. Yet, now they think they own it...

DOKeenan, when you say "Corporations may make more use of public services than poor people but they also pay more in taxes even without progressive taxation" it is something that they want you to believe but which is not true.

Imagine if you paid a bunch of tax each year but then the government in return gave you back in cash an amount 3 times as much. And they said you could pay no tax the following year. And they gave you a free house to live in. That is how the major corporations work - they milk corporate welfare for many times the amount they pay in taxes. Not just from federal government but from states and cities, pitching them in competition with each other to get jobs into the area. Often these jobs are low paid, offer no training and were jobs which the company was going to create anyway.

This is why we should folow the French model... what did they call it? Oh yes: the Guillotine.

kivals,
For a representative example of what I'm talking about see:

Eric Engen and Jonathon Skinner, (1996) "Taxation and Economic Growth", Working Paper 5826.
They find in a cross-sectional regression using international samples but also using growth rates within the US that changes in marginal tax rates do have statistically significant (although modest) effects on growth. Even among liberal economists I think you would find a consensus that high taxes on any group will dampen growth. Whether there are important public goods like healthcare or education or even social equality that outweigh the benefits of lost growth is a debate to be had. My point isn't even that high taxes are always a bad thing, sometimes their necessary. Just we should be careful about acting like there is an easy way to soak the rich.

Your Clinton example is factually true but doesn't necessarily speak to causation, only corellation. I'm reminded of arguments that Bush has kept america safe because there haven't been any attacks on the US since 9-11. I think we all realize this is absurd. No attacks have occurred in spite of, not because of Bush. I applaud much of what Clinton did while in office, but you should recognize he did not raise taxes that much. What would have happened if he had not raised taxes is a significant (if not the only) question. Economic analysis using historical and cross-sectional data is an important way to speak to this question.

In this regard, I think the phrase "guesswork" is a little unfair. Everyone has personal biases, including progressives. That doesn't make the science worthless. Statistical analysis is objective in its method, the question is how that method is applied. Over time disciplines can build consensus, as economics has becuase empirical evidence, think for instance of Ireland vs. the rest of western Europe in teh context of taxation, for certain conclusions. The wealthy may support these conclusions but that doesn't make them wrong. Like anything we should look at evidence nad not take anyones word at face value.

Lastly, Gates did pay people but he also started innovation before he had a huge company working for him. At that time many people felt computers should be public domain. Gates had a vision of intellectual property, very different from public domain over software code. Had this incentive not been there, or been reduced enough by extremely heavy taxes he might not have chosen teh path he did. As important, those who now make lots of money working for him, woudl also lose that incentive.

...but I still think the authors of this piece are still a bit to meek about the issue.

We should also support progressive taxation because it IS redistributive and flattens the distribution of national wealth. Robin Hood was a good-guy, remember?. Totally beside the fairness of it, both history and contemporary political geography teach us how societies degrade and even become violent when wealth distribution becomed overly skewed. Remember France in the 1790's, or central America today.

DOKeenan. I would have thought that just about everyone knows that corporations do their best to pay no taxes whatsoever. Fairly recently, there was an article here on Common Dreams which was about a number of corporations like G.E. and Westinghouse being fined billions of dollars for back taxes they never paid. Also, corporations move their money and hide it in places like the Cayman Islands to avoid paying any taxes. And what really gets me is corporate welfare. My tax dollars subsidize big multinational corporations. Corporations are the worst at paying their fair share of taxes, period.
As stated in the article, business use the infrastructure much more than any one citizen and our universities and public libraries and on and on have helped many people become wealthy. Progressive taxation is fair. And I always hear these people insisting that lowering the taxes on the rich stimulates the economy. No, it does not.
As I wrote in an earlier post: John Kenneth Galbraith, called them "horse and sparrow" economics: "if you feed enough oats to the horse, some will pass through to feed the sparrows."
David Stockman, who as Reagan's budget director championed these cuts but then became skeptical of them.
Speaking on the Senate floor in 1992, Sen. Hank Brown said, "Mr. President, the trickle-down theory attributed to the Republican Party has never been articulated by President Reagan and has never been articulated by President Bush and has never been advocated by either one of them. One might argue whether trickle down makes any sense or not. I do not think it does. To attribute to people who have advocated the opposite in policies is not only inaccurate but poisons the debate on public issues."
Trickle down economics is a fantasy.

kivals April 16th, 2007 5:38 pm
DOKeenan,

"I do not know where you get your statistics, but Clinton raised taxes and the economy improved in the aftermath.

Economics is a social science, and like all social sciences, it is mostly guesswork. And the wealthy elite will always support economists who provide arguments that are consistent with interests of the wealthy elite, but for someone who is not wealthy, it makes absolutely no sense to trust them."

Not only do the wealthy elite support these economists, they spend millions developing "think-tanks" to think-up bulls**t economics and economic policies to enrich themselves.

When will Americans come out of their coma? Take off the rose-colored glasses; corruption is all around you!

I'd like to propose a different way to look at the issue of taxation. I am in complete agreement with the concept of the common wealth. I would suggest however that the common wealth starts with those things that are not the result of human endeavors. Land, water, air, the radio spectrum, the oil in the ground, etc... Historically the control of the commonwealth particularly land has been the foundation of all wealth and power. On the other hand the things we as individuals create using our minds, our hands, our intelligence and our creativity are unique to each individual and not part of the common wealth. In this light I feel that "income" tax is wrong because it extracts the money needed by the society to provide the protection and empowerment services and infrastructure described in this article from the wrong side of the production equation. Instead the society should charge a fee for the use of the common wealth as I previously defined it, the money generated from these fees would fund all the services needed by the greater society for protection and empowerment services and share the commonwealth more fairly amongst all members of the society. If a company wants to provide wireless phone and data services, the have to pay for the right to use the radio spectrum which is part of the common wealth, but the profit they make because of their ability to market their services and run a efficient enterprise would not need to be taxed. The same would hold true for food production, housing development, extraction of minerals and petroleum, production of goods of all kinds. Even the creation of pharmaceuticals from chemical compounds. The reality that everything physical originates from the common wealth. These are not my ideas. The concept of land value taxation is as old as history it's self. However these ideas were put into system of economics espoused by Henry George. If you are interested you can learn more google Henry George of see one of these websites. http://www.progress.org/geonomy/ http://www.henrygeorge.org/ http://www.schalkenbach.org/index.html

Hmmm…

I think there are certainly a few valid points here:
1) Corporations do lobby and receive huge subsidies – these have significant market-distorting effects – I think a good place where anyone with a classical or progressive sense of economics can unite is in calling for a reduction in corporate subsidies (curiously, I hear little complaint about equally destructive agricultural subsidies which indirectly kill and impoverish millions in the third world in the name of protecting US workers) – I would support repealing these subsidies before reducing corporate tax rates but that is NOT a warrant for increasing corporate taxes. Two distortions don't necessarily offset themselves.

2) PJD, your are correct about wages being tax deductible. However, returns to investors are not. Increasing taxes increases the necessary pre-tax rate of return to capital which reduces the incentive to invest in capital. This means the optimal level of labor investment goes down. You are probably correct that wages do not per se decrease for workers who are still around but if corporations invest optimally post-taxation the distortions will mean corporations hire less labor, and that growth-producing investment is lessened.

That said, I'm not sure anyone has a convincing argument why raising taxes on corporations actually increases economic growth. Certainly in the case of distorted or monopolized markets taxes can be an important tool. I support raising them in those instances. However, even the most progressive economists will admit that taxes induce efficiency loss into the economy. It's a fact. The question, which I will readily admit is one that doesn't have an easy answer is how we should weigh that efficiency loss, and subsequent reduction in growth against the benefits that can come from spending taxpayer money, such as education, healthcare,…

It has been pointed out that economic growth occurred under Kennedy and Clinton with tax increases or high tax rates (Kennedy actually cut taxes). This certainly proves high taxes don't utterly prevent growth. An equally relevant question is whether growth, and the benefits it brings could be greater in a low or flat-tax environment. Most empirical assessment says yes.

Ultimately, I'm not so naïve as to say that corporations don't buy the studies they want. Thinktanks have a litany of problems. But government economists and those who work at universities will tell you pretty much the same thing, as will a cursory glance at tax policies and growth rates globally. For an example, check out Eric Engen and Jonathon Skinner, (1996) "Taxation and Economic Growth", Working Paper 5826.

Economic theories, like those of any social science, cannot be validated by rigorous scientific experimentation. There are an unlimited number of uncontrollable variables and so any results are subject to interpretation. And interpretations will be made in the interests of those who make them.

Another problem with most economic analyses is with regard to time frame, the long-term, medium-term, or short-term. What is easiest to study is the short-term, but what is good for the short-term is not necessarily good for the long-term, and usually is quite the opposite. And in the long-term, the picture is unbounded in complexity and we can all guess long into the night and never convince each other of anything, particularly if we have different interests.

My guess is that in the long-term the best approach is to invest in people, in knowledge, and in infrastructure, providing money for education, childcare, healthcare, nutrition, libraries and information resources, communications, physical infrastructure, and research. It seems pure waste, and actually quite corrupt, to encourage development of a system that leads to people accumulating vast sums of money to be spent on luxuries or to pass on to children such as Paris Hilton (it corrupts them as it denies others of resources they need).

kivals your system seems to be a bit excesive. Basicly none can take home more than $100k unless they earn more that $1,000,000.00. While I would concur that $1,000,000.00 per year is a lot of money, $100k to $200k in the usa today is middle class, not rich.

A further point for DOKeenan to ponder:
You raised Ireland as an example of what low taxes are able to do, but that is a gross oversimplification of the matter. It does not take e.g. the enormous EU subsidies into account. The matter is a much more complicated than you might think.

What I really want is for all corporations to pay taxes. They get away with far too much while the poor have to carry an unfair share of the burden.
If corporations have a Bill of Rights like people do, then they should be subject to the same scrutiny and accountability as any individual. I don't get any special favors, why should they?

There is another way. I propose that there be no tax on earned income for individuals, only tax on unearned income. The reason for this distinction is that earned income amounts to a mere conversion of labor for goods whereas unearned income (meaning gain -- the sense of income when the 16th Amendment was written) is capital gain which often involves the exercise of privilege and comes with government oversight, which has value and should be paid for.

Further, I propose that corporations and LLCs pay a flat tax on revenue, i.e., a percentage of every dollar taken in, without regard to profit and with no deductions or exemptions. This would apply to all corporations and LLCs, foreign and domestic. Naturally, this tax is passed in the price of goods and services, which is the way of things anyway.

Thus consumers pay tax only on what they buy and the tax is built in in the form of the pass-along of the revenue tax.

NO national sales tax.

I really don't see why this would not work. No deductions, no exemptions, and no need or basis for corporate welfare.

DOKeenan,

You wrote:

"I'm not sure anyone has a convincing argument why raising taxes on corporations actually increases economic growth. The question, which I will readily admit is one that doesn't have an easy answer is how we should weigh that efficiency loss, and subsequent reduction in growth against the benefits that can come from spending taxpayer money, such as education, healthcare..."

You've provided your own answer. Of course raising taxes on corporations (or ANYONE) doesn't lead (directly) to increased economic growth. It is, by definition, contractionary, all else constant...

The question is, does raising taxes on corporations while subsequently reducing taxes on individual consumers, the poor...etc promote economic growth?

In addition, does using that money to "invest" in those other items you mention lead to a more productive AND stable economy? Allow common investments that the private sector would not adequately provide (or as cheaply perhaps)?

GDP is not good for its own sake. It has to promote economic, social, political (and ecological!) stability as well.

Aside:
The argument against progressivity goes like this: There's a disincentive to work (or invest, a DUBIOUS equivocation) if the next dollar I earn will be taxed more than the previous dollar -- because I'm not earning as much as before. If only economists would use the same logic to defend raising wages! Oh yes, that's right -- positive incentives are only useful when applied to the rich.

"kivals your system seems to be a bit excesive. Basicly none can take home more than $100k unless they earn more that $1,000,000.00. While I would concur that $1,000,000.00 per year is a lot of money, $100k to $200k in the usa today is middle class, not rich."

ArtRod and PJD,

ArtRod, I believe, is incorrect in his math (and here's hoping this table looks alright after the submit):

Rate Income After Tax
10% 10,000 9,000
10% 100,000 90,000
10% 200,000 180,000
10% 1,000,000 900,000 (***NOT 100,000***)
50% 10,000 5,000
50% 100,000 50,000
50% 200,000 100,000
50% 1,000,000 500,000

ArtRod inverted the math and stated with an income of 1,000,000 at 10% income would be 100,000 but the tax is 100,000 not the income (the income would then be 1,000,000 - 100,000 = 900,000). So kivals' example isn't that excesive. A person can take home more than 100,000 in both cases (that kivals states) if they make a million. "Math class is tough!", Barbie (1992). ;)

hhc3

Hmmm, well, that's the last time I try to make a nice table.

hhc3

Income tax on the poor and middle class makes no sense. Why discourage work? Why have property taxes on modest homes? Why discourage home ownership? Paying moderate taxes on luxury homes, estates and higher incomes makes sense to avoid increasing the economic stratification of America that damages democracy with the power of wealth. Energy taxes should be significantly raised to reflect the damage caused by each type of fuel and energy production. Sales taxes should be redirected towards luxury items, polluting devices, and inefficiency. For example, regular incandescent bulbs should be highly taxed, along with inefficient appliances and vehicles. An energy tax rebate of equal value to all adults could ease the tax burden on the poor.

PJD - Good point, "middle class" is a bit of a misnomer these days. It has alot to do with lifestyle. I know people who live happily on under $12 K, but that is a choice they have made, I know others who I would consider "middle class" who do quite nicely on less that $40k, but they live in a rural area where the average cost of housing is well under $100k. I even know some people who own row homes in the coal region of PA worth $15k and drive cars worth $30k. Most people I know who make over $100k have an expensive lifestyle and, in order to earn that relatively high income must live in an area where housing starts at $300k or more, with 2 working parents and other lifestyle choices they don't have much left out of each paycheck. But this is relay my point taxing income is taxing the wrong end of the production equation and penalizing people for earning money. See my other post for my ideas on what I believe is a more just solution.

hhc3 - I am not sure you and I are reading the kivals original post the same way, so I took the original post and broke it out exactly as written but one line per income bracket.

over $1 million: 90%, That means taking 90% of the income!
over $500K: 80%,
over $250K: 70%,
over $200K: 60%,
over 150K: 50%,
over 100K: 40%,

That looks to me like a 90% tax on anything over $1,000,000.00 leaving only $100,000.00 to the income earner.

At 40% tax on a $100k salary that leaves the earner with $60k.

Your table looks fine, it's your understanding of what kival was suggesting that seems flawed.

I did pretty good in Math :-)

In General, a great and thoughtful discussion, but why is it here and not on the floor of the deciding body? Take a close look at our House of Representatives. Note that individual office seekers raise their own money.The collective debate takes time and argumentation. But it would result in a broad consensus among those of the body politic. This happens when there is a strong party system. Sadly this is absent in America. This wonderful, thoughtful and helpful exchange becomes pointless.Parties are in office seekers mind insignificant. Not so in most other mature, functioning democracies. Forget the guillotine!We need to rewrite the Constitution, or at least outlaw money from the political process. I have often wondered why the size of the house was fixed at 435, almost at the same time as the income tax was broadened. I suspect it was for the same reason that our law makers love to fix the time for comments at public hearings. I am all for representative democracy where each citizen has an equal vote in picking their representative. In America, the political process has become distorted such that dollars vote. The rich have more of these-hence our current tax law. The only way to get more of the people's

views and needs debated at the funtional level is to have active parties(not paid influence peddlers). This would happen if we made the house membership two hundreth thousandth(.000002) percent of the voting age population. Is it unreasonable for a representative democracy to have one representative for every 250,000 citizens? Afterall,it is the people's house.FAT CHANCE!

ArtRod: Argh, yes you are correct, I was confusing the post of kivals:

"We need to go back to a truly progressive tax such as that before Kennedy, which, in today's dollars, could be something like: for income over $1 million: 90%, over $500K: 80%, over $250K: 70%, over $200K: 60%, over 150K: 50%, over 100K: 40%, and of course "

with the post of PJD:

"Tax someone making 10,000 at 10 percent, they have $9000 left to somehow make ends meet. Tax someone making 1,000,0000 at an bracket-average rate of say 50%, tehy still have a cool $500,000 to play with."

I really like this new comment feature of commondreams.org but it would be nice if responses were indented to help organize them since I seem to need the help reading them. :)

hhc3

mike -

I disagree. The USA is a mercantileist society, where corrupt corporations subvert our government in order to keep power and wealth in the hands of the ruling elite while subjugating the rest of us to the role of wage slaves. True capitalism has never been tried anywhere either.

Progressive taxation is the opposite of what you think: http://www.ipi.org/ipi%5CIPIPublications.nsf/PublicationLookupQuickStudyPDF/D79990146B436FD186256B4D0073A594/$File/QS-Hartman-Redistribution.pdf?OpenElement