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Who pays?

2013-02-24 20:42:18.278116+00 by Dan Lyke 15 comments

Institute on Taxation and Economic Policy - Who Pays? A Distributional Analysis of the Tax System in All 50 States.

Major tax overhauls are on the agenda in a record number of states, and “Who Pays?” documents in state-by-state detail the precise distribution of state income taxes, sales and excise taxes and property taxes paid by each income group as of January 2013. It is a critical baseline against which future proposals can be measured.

So here in California, the lowest 20% pay 10.6%, the top 1% pay 8.8%. Picking a few other states where I know Flutterby readers reside, in Tennessee, that's 11.2% and 2.8%, Georgia 11.3% and 4.9%, Colorado 8.9% and 4.6%.

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comments in descending chronological order (reverse):

#Comment Re: made: 2013-02-27 16:24:42.630501+00 by: Dan Lyke

So how do we set up a falsifiable hypothesis to test this?

When I read Shadow's comment, the first thing I thought about was the amazing amount of cash that Apple is sitting on, and the fact that Microsoft is spending money taking Dell private rather than buying back stock.

This suggests that both Apple and Microsoft's boards of directors think that the stock prices of those companies are massively over-inflated.

I know durable goods orders are pretty high this quarter, but looking at cash reserves might be a way to tell whether the management at boards at various publicly traded companies think their stocks are over-valued. And I definitely think that the 401k boondoggle is largely a way for Wall Street to artificially prop up stock pricess, but I haven't formulated narrow enough theories that I could gather and throw numbers at to validate.

Any other ideas?

#Comment Re: made: 2013-02-26 23:50:59.075609+00 by: TheSHAD0W

Andy, when you buy stock in the stock market, it means someone else is selling that stock. Money doesn't get pumped *into* the stock market, but *through*. The sellers put the money into other stock or other investments, or sometimes buy things (incurring that sales tax we started talking about), paying capital gains taxes on the profit.

#Comment Re: made: 2013-02-26 19:30:18.493118+00 by: andylyke

Shadow: I'm sorry you didn't take the time to read to the bottom. The money is simply inflating the stock market, since it has no place to go as real new investment. It is exactly going under the (figurative) mattresses.

#Comment Re: made: 2013-02-26 17:58:36.414219+00 by: Larry Burton

Okay, what good is it to save and invest if there is no intent to eventually putting those savings to use purchasing material goods, if not by this generation then certainly by future generations? People with less money have to spend more of it on goods, taxable or not. People with more money are saving and investing to put off buying the material goods in their old age. What good is the money unless it eventually is used to purchase goods?

Remove the tax from income and put it on outgo and you place no more burden on the poor than the burden they currently bear because as the tax becomes a component part of the price of retail goods the price of goods will not exceed what the purchaser can bear which means the tax burden will not exceed what the purchaser can bear. If the wealthy no longer see a tax advantage to saving and investing they will spend more of their money on material things. After all, why save beyond what is needed if you can provide yourself with more material comfort?

Dan, in 2001 the tax cut did not spur greater growth but I'll submit that it put the economy on a more gentle glide path, as did the tax cut in 2003. The air had been let out of the 90's bubble we had and our involvement in two wars along with the damage done by 9/11 to the economy had us on a downward tilt headed for a crash. I will suggest that the tax cuts prevented that crash from happening in 2006 and put it off until 2008. So I think the tax cuts did work but the tax cuts also removed the federal income tax burden from the bottom earning 47% of households. We've cut taxes as much as they can be cut to make a difference.

Now if you really want to cut taxes to stimulate spending wouldn't cutting a sales tax do more to stimulate spending than cutting an income tax? The added benefit to this is that the increase in sales might actually bring in more revenues at the lower tax rate than at the higher one. Put the tax cut in place for six months and bring it back to the old rate as a monthy fractional increase and you've jumpstarted the economy and brought in more revenue while doing so.

#Comment Re: made: 2013-02-26 15:52:07.830012+00 by: Dan Lyke

I think we've had a decade+ long experiment in "the wealthy create jobs when their taxes are lower", and I believe the answer is a resounding "not". That's not complex economic analysis, that's just looking around. We've had since 2001 of "if we cut taxes we'll see bigger growth", repeated in 2003, adjusted in 2005, followed by, of course, the big crash, but renewed in 2010.

Larry, on the "using income earned as proxy", I think that in our current government structure that's the best proxy we've got. Certainly the benefit for our oversized military is more proportional to income than to spending, the benefit for our unmaintainable infrastructure similarly (with unskilled wages flat or declining relative to the CPI for the past 4 decades, it's hard to argue that the workers in big box stores are doing better, and big box stores are massively subsidized by all the roads for which we're starting to get hit with the maintenance costs).

You might be able to make an argument for anti-poverty programs, but even there, having a large pool of educated motivated workers and consumers has a hell of a lot of value, else why wouldn't all of the startups we see happening in California be happening in Central America?

#Comment Re: made: 2013-02-26 15:44:47.288339+00 by: TheSHAD0W

> It's absolute nonsense to believe that given more money the wealthy will go out and spend it to build plant or inventory absent demand.

What exactly do you think "saving and investing" is? Where is this money going? Under their mattresses? I suggest you follow the money.

#Comment Re: made: 2013-02-26 13:07:15.567923+00 by: andylyke [edit history]

Enough with the "wealthy people create jobs" b.s. The poor person's marginal propensity to consume is far greater than that of the wealthy. The family living on $15,000 that gets another $10 will spend it on the factors of living which in turn increases demand for goods and consequently boosts employment, both in the production of the goods and in the building of plant. The billionaire will invest it in "something"

It's absolute nonsense to believe that given more money the wealthy will go out and spend it to build plant or inventory absent demand. We didn't get wealthy investing in idle capacity. The present situation: lingering high unemployment and a stock market at record highs is a result of the deliberate move (at least at the federal level) toward more regressive taxation. The wealthy see no increase in demand consequently have nothing to with their excess wealth than "invest" in already existing corporate shares. Oh - and in corrupt representatives and other public office holders.

#Comment Re: made: 2013-02-26 02:43:48.783755+00 by: TheSHAD0W

The people with more may pay less, percentage-wise - but when they save and invest, they're benefiting the economy, creating jobs.

#Comment Re: made: 2013-02-25 23:37:34.152613+00 by: Mars Saxman

The problem with a retail sales tax is that people with less money have to spend more of it on taxable goods, while people with more money can afford to invest and save instead of buying material goods. So a sales tax is inherently regressive - the people with less pay more, and the people with more pay less!

I don't see what the problem is with progressive income taxes - even if people do manage to reduce their tax share by taking advantage of deductions, or by outright cheating with them, the data we're looking at here clearly shows that progressive income taxes beat flat taxes and *really* beat sales taxes in terms of putting the burden on the people who can afford to shoulder it.

#Comment Re: made: 2013-02-25 20:37:44.649208+00 by: Larry Burton

Mars, that "using income earned as a proxy" part is where I tend to think the equation is screwed up and why I question the problems perceived in a regressive tax system. In order to calculate income expenses have to be deducted and those deductions are where the system is gamed. I'd much prefer to see a retail sales tax used to fund a government than an income tax. In a competitive market retail prices will correct for local income available to purchase and taxes added onto the sale. Without a tax on income (profits) there will be a more level playing field amongst businesses to make the market competitive.

#Comment Re: made: 2013-02-25 18:16:24.922345+00 by: Mars Saxman

Larry, the way I look at it is that income is in large part a measure of the degree to which you are taking advantage of the resources society provides you. One person can only perform so much labor on their own; to create more value than your individual labor is worth, you have to gather up and repackage the labor of other people, presumably adding some value in the process. The more people's labor you can repackage, the more money you can make: but the wider the base of that pyramid spreads, the more dependent you are on the community infrastructure which makes those transactions efficient.

It makes sense that the people leaning the hardest on society's infrastructure ought to be the ones who pay its bills. Progressive taxation accomplishes this, using income earned as a proxy for the level of benefit received.

#Comment Re: made: 2013-02-25 16:20:37.814395+00 by: Dan Lyke

I would like to see a little bit more economic analysis on the conditions that lead to concentrations of wealth. Since we are massively subsidizing, for instance, the infrastructure sprawl that makes large centralized "big box store" distribution systems economically viable, it only makes sense that those who profit from those stores pay for that infrastructure.

#Comment Re: made: 2013-02-25 15:29:31.107966+00 by: Larry Burton

I don't see a problem with a regressive tax system. Every expense of a poor family will be a bigger portion of their paycheck than a rich family; transportation - higher, food - higher, housing - higher.... why should their expense for government services be different?

#Comment Re: made: 2013-02-25 00:13:31.760717+00 by: ebradway

Love it:

- Ten states with the most regressive tax systems are: Washington, Florida, South Dakota, Texas, Illinois, Tennessee, Arizona, Pennsylvania, Alabama and Indiana.

States with no individual income tax: Washington, Florida, South Dakota, Texas, Tennessee, plus New Hampshire, Alaska, and Wyoming. (from Wikipedia)

It's interesting to note that, in Colorado, the top 1% pay an effective 4.6% tax and the state's flat tax rate is 4.63%. I know, last year, that I had no deductions from my state taxes.

#Comment Re: made: 2013-02-24 23:10:57.744241+00 by: Mars Saxman

Washington wins! We are the most regressive!