US deficit crisis: the clock ticks

[Joey D]

He asked that, because the lowest half of income earners in the country pay no federal tax after everything is said and done, would you be in favor of raising taxes on them to fix this? It seems they're not paying their fair share.

I've already pointed put that I'm in favour of a flat rate tax system. That's what I would suggest would be the fair solution to fix the problem.

 

[FoolKiller]

The only reason consumers feel a pinch is because companies feel the need to make the same amount of money or more. As I've said, I'm not suggesting a companies goes into the red, but having reduced profits while keeping jobs in the US seems like it would be more beneficial, at least in my opinion.

How much reduced profits? I can tell you right now that on salary alone having my department outsourced is saving 75%-80%. It is higher after calculating benefits, but I don't know what the monthly cost of those were for my department. I feel our product is worse for it and I feel like it is setting us up for failure, but on paper that is one hell of a difference in profit, especially for a company that was having cash flow problems.

I can make $250 payments on my car now, however if I saved $250 per month for 36 months I'd only have $9,000. Put that with the $12,000 I put down on a new car and I still only have $21,000 for a car that cost me $26,000.

In three years the same car would no longer be $26,000, and you are paying more than $26,000 with a loan.

Buying on credit isn't a problem, it's only when you can't afford to make the payments or you spend beyond your mean it becomes a problem.

Yet, sometimes life happens and people can't continue to make payments. These same people regularly do not have an emergency fund or any other kind of money they can live on and continue to make payments with. Why would you put your life in the hands of chance for a middle to large ticket item that a few years of savings could get you with near zero risk?

And houses have investment values? My parents house is worth about half of what it was when it was first purchased. And they probably invested at least $75,000 into improvements, if not more. It all depends on the market.

All investments depend on the market. There are such things as bad investments. I don't get your point. On average real estate is one of the best investments you can make. Taking single, tiny pinpoints in time as a comparison for the worst housing market in the country at this moment is ridiculous. Look at housing as a whole across the country, over time. Do you think a starter home in Southern California was always $1 million?

Whatever else the previous owner did to it. Some people see having a car they have to fix right after they purchase it by paying even more out of pocket as a headache. This is why I bought a new car, with a warranty. If something breaks, then it can be fixed by dropping it off at the dealership and collection it when it's done.

Whoever buys my MINI is in for a huge headache, I know I would be pissed if I bought a "new" used car only to find out the transmission exploded and cost a pretty penny to get it fixed...and I had to go to the dealership because no local shop would touch it.

I'm not saying used cars are inherently unreliable, I'm say that some people don't want to deal with the problems if they happen to be.

The two rules I was always taught about buying a car:
1) Never buy it new: You lose 10%-15% by driving it off the lot and any built-in issues are yours to deal with. Let someone else deal with the hassle and loss.
2) Never buy the first year of a new model. Let someone else work out the kinks.

That said, my current car was bought new with a loan. I thought then like you do now. I hate dealing with a monthly payment, hate that it had two warranty issues that ate into my time, and hate that with the loan I am required to have insurance coverage that no longer represents the value of the car. It is a mistake I don' intend to repeat.

I had enough cash to have purchased my Focus outright, but that would have put a huge dent in my savings account which is for a down payment on a home of my own.

Are you buying this home any time soon, or will the car be paid off before you buy this home? And you are fully aware that because you bought the car with a loan you are paying more for it than you would have if you had put 100% down?

They pay most of the income tax because they make most of the income. That only makes sense.

But why do they pay a higher percentage of their income. It isn't a relative system, it is a progressive system. The more you make the more percentage you pay.

My thoughts: Those that are rich and wealthy, they will allways make it, they will still partying and buying expensive stuff. Regular folks on the other hand will have alot harder time. There is a problem, who do you think should pay?

Why should the people that make more pay more even if they don't live a lavish lifestyle? This is why a consumption tax would be more fair. If you are rich but got there because you barely spend money then you still don't pay a lot of taxes, but if you live a playboy lifestyle you will pay the taxes.

It isn't the buying on credit that's necessarily the problem. It's the buying on credit but not being able to afford the repayments that's the problem.

Most people who get credit can afford it at the time. Circumstances change and so can the ability to pay. A car is not worth putting your financial future on the line for. It is the lesson I have learned in buying a car on credit while having declining health. Fortunately my health has barely affected my financial standing, but if it does my car will be the first thing to go.

 

[Danoff]

I don't know what is the "right" percent, but I certainly feel that taxpayers earning less than the US Poverty Income Line shouldn't be paying any "net" tax. The US Poverty level for 2011 per the HHS website is $10,890 (for a single individual), so I guess I would draw my lower-line tax level at this income number. Looking at the Tay Policy Center data, I guess that this might mean that roughly 20% of US taxpayers shouldn't be paying any "net" Federal Income Taxes. After this I'm for progressive rates that top out at around 40% (the top rate is a very arbritary number, but I certainly feel that as it nears 50%, it tends to distort taxpayer behaviour in an un-wanted way, and therefore should be avoided if at all possible). A Flat Tax sounds very fair on paper, but in practice seems to un-fairly favor the wealthy and those with inherited wealth. The wealthy already receive many benefits from a prosperous and vibrant society that the less well-off do not, so some shift in income is warranted (IMO). Could I be wrong? Sure! This is just my impression of what helps make a society advance and have consideration for all its citizens (who have an enormous variety of skills and abilities, and not all of these skills advance one's earning potential).

Even near the poverty line, people should pay tax (currently the poverty line in the US provides for cable television, a house, and two cars). It is critical that everyone pay their percentage of the federal government burden. If they do not, they will not see the negative signals of a growing government and this will distort their voting. This is true whether the number of people who's vote is distorted is 10% or 50%. Once it's at 50%, the number of people who don't notice the size of government is equal to the number who do - that's not the start of distortion, that's a tipping point at which government policy becomes mathematically incomprehensible.

If you're paying less than 10% in federal income tax (don't mention capital gains... even though that's 15%) then you're seeing a distorted signal. According to the tax foundation that represents the bottom 90% of all tax payers in 2008.

http://www.taxfoundation.org/news/show/250.html#Data

 

[homeforsummer]

Most people who get credit can afford it at the time. Circumstances change and so can the ability to pay. A car is not worth putting your financial future on the line for.

I think a lot can afford it at the time, but also don't consider the bigger picture. I've worked with a lot of people who've taken out loans for some quite impressive cars on the same wages of me and they'd be really pushing it financially as it is - let alone if their circumstances changed.

When I took out my loan I made sure that even if my circumstances changed dramatically, I could still afford the repayments (and even if the worst happened, I still had savings enough to pay for several months of repayments). And in the circumstance I had absolutely zero income for a sustained period, I would be able to sell the car cash and still have enough to pay rent, the loan and other stuff.

It's common sense not to live beyond your means, and unfortunately a lot of people can't claim to have much common sense. Life's too short to never spend your money, but it's always wise to keep an eye on the future too.

 

[nine4t4]

The US economy is basically sunk. The debt (loans and interest is edging right up to the GDP. It's red ink for a while. Your economy has collapsed on itself and it's not over yet. The best analogy is using your credit cards to pay off a mortgage. It doesn't work. The US government has been taking out loans to pay off loans, stupid

The US has been borrowing money from other nations for far too long. This has driven down the dollar of those nations, which means the labor is cheaper. Cheap labor has companies moving to places like the Far East. There go the manufacturing jobs.

So now you have people losing there jobs. Which means they need to pull from social programs, which takes even more money out of federal coffers. Those same jobless also don't pay the same amount of taxes. So this recession is bringing increased spending and decreased revenue at a time when the books are already in the red. You can't cut spending or raise taxes because of the catch 22

It started with the Fantasy Mortgages. People bought into flexible rate mortgages and actually thought they could afford huge houses. When the interest rates went up, many had to default because they couldn't even cover the interest (just like the Feds). The banks scooped up the defaults. The banks also, wanting to collect on the the bad debts they new were going to arise sold the debt risk to the insurance companies (regulation isn't always bad).

Then the federal government had to bail out the banks and other businesses. Combine those expenses with the new demand for social services and it's snowballing out of control.

Credit isn't a bad thing if you know how to use it, it can make you richer in the long run, i.e. a mortgage. But the Feds have been spending money like a 14 yearold girl with a credit card and no income.

People want the cheap easy route. They love buying cheap stuff at Walmart, because they think they are saving money. Buying at Walmart is like asking for a cut in your pay, because the money is being shipped over seas to China to cover loans.

Nevermind the Trillions that the chinese have in US cash

 

[MikeTheHockeyFan]

No better example of the hollow, rotting innards of the United States in the early 2000s than this flub:

 

[Danoff]

The US has been borrowing money from other nations for far too long. This has driven down the dollar of those nations, which means the labor is cheaper.

What?

It started with the Fantasy Mortgages.

No it didn't. It started long before that - think FDR.

Then the federal government had to bail out the banks and other businesses.

No it didn't.

Buying at Walmart is like asking for a cut in your pay, because the money is being shipped over seas to China to cover loans.

That makes no sense. A trade deficit is beneficial.


Edit: There's actually not much in your post that's correct other than that the US government is spending too much. Although it's funny to get that complaint from Canada.

 

[Joel]

Although it's funny to get that complaint from Canada.

 

[Dapper]

But why do they pay a higher percentage of their income.

http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html?_r=1

I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.

You ask moot questions. The rich should be paying more, and they agree.

Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.

Imagine that, the richest folks rates have gone down, their income has gone up, and the economy has gone down.

 

[Danoff]

The rich should be paying more, and they agree.

A) The rich are paying more.
B) One rich guy thinks he should be kicking over more than $6 million in taxes for a year. This guy needs to realize he can contribute as much money as he wants to the government. If he feels he's getting off easy, he should go ahead and send them some more cash. I think you'll find that he doesn't though. He just wants everyone else to.

Imagine that, the richest folks rates have gone down, their income has gone up, and the economy has gone down.

First of all, those seem like really dubious years to choose to examine this. I hope it's not cherry picking because there was a huge stock market crash in 1992. People who make a lot of money off of stocks got eaten alive in 1992 specifically. One would expect their income to be low for that year.

Likewise, 2008 was a good selloff period (read taxable gains) leading into the Obama administration in anticipation of raised tax rates.

If I had to guess at two years to pick to try to make it look like the rich were getting richer and their rates were dropping, I'd probably pick 1992 and 2008. Now, don't get me wrong, I'm sure this is just a coincidence and that if you'd picked 1990 and 2010, the numbers would be identical. I'm sure this isn't cherry picking at all. I'm just having a hard time not noticing the coincidence.

Second of all, there's an awesome way to make their tax rates look like they went up by a lot - stop taxing capital gains altogether. Capital gains shouldn't be taxed at all. By not reporting that on income taxes, it will look like the rich are suddenly making a ton less money (which is what we want right? for their income to go down?). This will be because most of their income now is in capital gains and that won't be considered income anymore. It will also make their tax rate look like it skyrocketed (also what we want right?) because now all of the sudden you're just looking at income tax rates and not capital gains.

Warren Buffet would go from making $35 million in a year to like $1 million. His tax rate would go from like 17% to more like 35%. All of this can be done by simply not taxing capital gains.

Problem?

 

[Joel]

You ask moot questions. The rich should be paying more, and they agree.

Everyone has a few laws they want to see, or a few restrictions they think everyone should live with. That doesn't mean your lawmakers should be violating your own constitution because of it. If they should be paying more, they'd certainly be able to, even with lower taxes. They aren't getting any good will from me because they're paying taxes. Taxes aren't good hearted free will. If they really want to pay more, they still can, they can volunteer their time and money to charities supporting whatever cause they feel is important.

 

[FoolKiller]

http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html?_r=1



You ask moot questions. The rich should be paying more, and they agree.



Imagine that, the richest folks rates have gone down, their income has gone up, and the economy has gone down.

First, I would like to note how informed you seem on this subject. You only had to wait three days after I asked my question for Warren Buffett to provide an op-ed you could quote. I wonder why you couldn't tackle the philosophical morality of the question without that.


Moving on, he claims that he knows rich people that want to pay more taxes. Really? Since he is so willing and since his mega-rich friends are also so willing, then that must mean that he has done the research to know that there is nothing stopping them from paying in more when they fill out their tax returns. It is completely allowed. And they want to do more for philanthropy? It is not philanthropy when you ask government to make you do it! Philanthropy is willing donations to charity. There isn't a gorram thing stopping them from that. So, this whole, "we want to pay more and do more, if only the government would make us," spiel is pure and utter BS. If they wanted to they could. If they wanted to they would. My immediate response to Mr. Buffett is, "have them all come forward and pull out their checkbooks and put their money where their mouth is."

To follow on that, let's pretend they actually can't without government intervention. Not every super-rich person wants to. If so then all this "the rich are greedy crap is nonsense" created by political bipartisans like yourself. So, why do one group of super rich get to dictate how and why other super rich should spend their money? They earned it.

Continuing with the moral question (and getting back to my original one): Why should anyone have to pay a higher percentage of their income because they make more? I am looking for an actual thought out, intelligent explanation, not a display of your copy & paste prowess.



Now, let me show you how Buffett contradicted himself using nothing more than the quotes you included in your article.

I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.

Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.

Interesting, especially when you look at the actual income tax rates of the US: http://en.wikipedia.org/wiki/Income_tax_in_the_United_States#Year_2010_income_brackets_and_tax_rates

So, in 2008 the top 400 had an average income of $227.4 million and paid 21.5% But $227.4 million is in the 33% tax bracket. How the...

Oh, I see. Those rich that he swears want to pay more, used tax loopholes and whatnot (such as the capital gains Danoff just described) to pay less, including himself.

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

He paid 17.4%. He could keep his money in places where he would pay the maximum (I'll get back to that in a second) of 35%, but he didn't. Odd for someone who wanted to. Also odd that he didn't just write a check for more money, which he can.

Now, back to that top income tax bracket in 2010: 35% for making $373,651+ a year. What were they taxed on to pay more than the maximum? Better yet, am I supposed to feel sorry for his poor staff who make over $373,651? I mean, you make more, you pay more, right? That's what you say.

Now, the issue with listening to anything Buffett says on this stuff is that we caught him out in a similar lie last year on GTP. If I find that thread I'll post a link. But he was claiming his secretary paid some huge percentage in taxes despite only making some tiny amount of money. When we looked at the tax brackets she clearly didn't come close to that range. EDIT: Found the link. https://www.gtplanet.net/forum/showthread.php?p=3825572#post3825572

He lies, he spreads myths, all in the name of supporting his own philanthropy efforts because his name is making him as much money as his investments.

And Forbes even called him on it today.
http://www.forbes.com/sites/peterferrara/2011/08/18/warren-buffetts-public-disservice-on-taxation/

Buffett began his media offensive with an op-ed in the New York Times on Sunday, “Stop Coddling the Super Rich,” where he complained that taxes need to be raised on “the rich” so they can pay their fair share. He reported that he paid 17.4% of his income in federal taxes, and claimed “If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.” That is inaccurate.

Official IRS data shows that for 2007, before President Obama was even elected, the top 1% of income earners paid more in federal income taxes than the bottom 95% combined. That top 1% paid 40.4% of all federal income taxes, almost twice their share of income. When Ronald Reagan entered office, the top 1% paid 17.6% of all federal income taxes. That is why Jack Kemp always used to say if you want to soak the rich, cut tax rates.

President Obama’s tax rate increases, already adopted in current law for 2013, apply to singles making over $200,000 a year, and couples making over $250,000. That is roughly the top 3% of income earners. The latest IRS data shows that the top 3% of income earners pay more in federal income taxes than the bottom 97% combined. Indeed, the bottom 50% of income earners today as a group pay no federal income taxes on net. So if the rich are not paying their fair share, what would their fair share be, Mr. Buffett?

The facts are similar in many of the highest taxed states in regard to their own state income taxes. In California, the top 1% pay 48% of all state income taxes. In New York, the top 1% pay 41% of all state income taxes. In New Jersey, until recently the top 1% paid 46% of state income taxes.

Moreover, America’s corporate income tax rate is virtually the highest in the industrialized world at nearly 40% on average, counting state corporate rates. Even Communist China has a 25% corporate rate, with the average in the mostly socialist European Union below that. In formerly socialist Canada, the corporate rate today is 16.5%, scheduled to fall under current law to 15% next year. Does this sound like the rich are not paying their fair share, Mr. Buffett?

You said

The rich should be paying more

They do. They pay more than all of us. They not only pay more, they pay progressively more unless they, like Mr. Buffett, find ways to pay less and then cry fake tears about how it isn't fair and they feel guilty.

But back to my original question, because you never really answered it.

But why do they pay a higher percentage of their income?

I ask, because you act like everyone paying 20% is somehow making the rich pay less. But last time I checked, using math I learned in 1st grade, 20% of $1 million is a lot more than 20% of $20,000.

Now, why should the guy making $1 million pay 35% in taxes? How is that fair? I am asking you for your answer, your reasoning, your logic, not an op-ed piece you run across next week.


And in case you want to question if rich people can voluntarily give more money to government: Here is the site.

http://www.fms.treas.gov/faq/moretopics_gifts.html

And I am sure that if people like Mr. Buffett really did care, they would know about this. It has been an option since 1843.

There we go, they can put their money where their mouth is. Or they can give it to me. Contact information for voluntary donations are available on request.

 

[Danoff]

President Obama’s tax rate increases, already adopted in current law for 2013, apply to singles making over $200,000 a year, and couples making over $250,000. That is roughly the top 3% of income earners. The latest IRS data shows that the top 3% of income earners pay more in federal income taxes than the bottom 97% combined.

Ugh.... I'm in that bracket and I can tell you it's not fun. Between federal tax and California tax I have to turn over approximately 50% of every extra dollar I earn.

I recently received a $250 bonus for good work. Not much I know, but it'll show up as a lot less after social security, california tax, and federal tax get taken out. Probably ~$100 or so.

Not a big incentive to work hard or make more money I can tell you.

 

[MikeTheHockeyFan]

Suddenly your worldview and opinions posted here make a ton more sense to me, Danoff

 

[Danoff]

Suddenly your worldview and opinions posted here make a ton more sense to me, Danoff

Well, I should point out that when I first started posting on GTPlanet I was considered very near the poverty line. Also, it turns out that from a financial viewpoint I married very well - even though she was unemployed at the time.

 

[FoolKiller]

Suddenly your worldview and opinions posted here make a ton more sense to me, Danoff

Don't know what his income has to do with supporting equality.

But since it seems to matter, I must be a total confusion to you then: Middle class, large health issues, and registered Libertarian.

 

[Dapper]

Now, why should the guy making $1 million pay 35% in taxes? How is that fair? I am asking you for your answer, your reasoning, your logic, not an op-ed piece you run across next week.

First, I'd like to mention I didn't notice your post until about 10minutes before my previous post.
Second, obviously what me and you consider fair are very different. Here is why: You think it is fair for an extremely small group of people to fleece most of the country.

 

[Danoff]

You think it is fair for an extremely small group of people to fleece most of the country.

Who? What? Because these rich guys are using all of the welfare programs and contributing nothing... no wait...

 

[FoolKiller]

First, I'd like to mention I didn't notice your post until about 10minutes before my previous post.
Second, obviously what me and you consider fair are very different. Here is why: You think it is fair for an extremely small group of people to fleece most of the country.

How is a flat percentage rate fleecing anyone?

You are not explaining anything.

EDIT:

Who? What? Because these rich guys are using all of the welfare programs and contributing nothing... no wait...

And those who pay no taxes never use roads, police, or...no wait...

 

[Tornado]

Here is why: You think it is fair for an extremely small group of people to fleece most of the country.

Last I checked, over 50% of the country (as in, the percentage of people who contribute nothing in taxes) was not "an extremely small group of people."

 

[Dapper]

Who? What? Because these rich guys are using all of the welfare programs and contributing nothing... no wait...

Yes, essentially. Because of their money hoarding their is no money in the economy trickling down to the middle class.

 

[FoolKiller]

Yes, essentially. Because of their money hoarding their is no money in the economy trickling down to the middle class.

What does that have to do with taxes?

 

[Dapper]

What does that have to do with taxes?

When the tax rate was higher the economy didn't suck.
There was less debt, more tax payers, less unemployment, etc., yet you worry about fair.

 

[Danoff]

Yes, essentially. Because of their money hoarding their is no money in the economy trickling down to the middle class.

Um... what?

 

[Dapper]

Um... what?

What? No understando?

 

[Danoff]

What? No understando?

You're not making any sense. You think higher taxes will help the economy? Even the staunchest pro-tax liberals recognize that taxes are a drain on the economy - they slow down economic growth and job creation. This is well known fact.

Also well known fact is that higher taxes does not encourage spending, and will not prevent the "hoarding" that you imagine is taking place.

 

[FoolKiller]

When the tax rate was higher the economy didn't suck.
There was less debt, more tax payers, less unemployment, etc., yet you worry about fair.

So, I asked you why they should pay a higher rate to be considered fair by you, and why you didn't consider a flat tax rate fair. Why do you keep answering questions like my wife?

 

[Dapper]

You're not making any sense. You think higher taxes will help the economy? Even the staunchest pro-tax liberals recognize that taxes are a drain on the economy - they slow down economic growth and job creation. This is well known fact.

Also well known fact is that higher taxes does not encourage spending, and will not prevent the "hoarding" that you imagine is taking place.

Myths! How can you not understand the rich are getting richer and nothing good is coming out of it? Tax rates use to be higher and things were generally better for most Americans. How can you deny things like that?

So, I asked you why they should pay a higher rate to be considered fair by you, and why you didn't consider a flat tax rate fair. Why do you keep answering questions like my wife?

Your wife sounds like a nice lady!
I am all for a flat tax once the disparity in debt is relinquished from the poor folk of America. Or if the minimum wage was twice as high as it is now, or higher. 👍

 

[Danoff]

Myths! How can you not understand the rich are getting richer and nothing good is coming out of it? Tax rates use to be higher and things were generally better for most Americans. How can you deny things like that?

Tax rates used to be higher and things were worse for most Americans. How can you deny things like that?

 

[Dapper]

Tax rates used to be higher and things were worse for most Americans. How can you deny things like that?

Not in my lifetime.