US Historical Income Tax Rates(taxfoundation.org) |
US Historical Income Tax Rates(taxfoundation.org) |
https://commons.wikimedia.org/wiki/File:Historical_Marginal_...
As Mitt Romney pointed out in 2012 [1]: "Forty-seven percent of Americans pay no income tax."
[1] https://www.politifact.com/factchecks/2012/sep/18/mitt-romne...
For example, 57% of households did not pay any federal income tax in 2021: https://www.cnbc.com/2022/03/25/57percent-of-us-households-p...
That's not even from COVID, the percentages are fairly similar going back a number of years.
I am really opposed to taxing things that aren't actually realized (stock). The number of horror stories on HN about stock options just leads me to believe we do it wrong. I would rather we do a better job on the transaction to cash out.
After the standard deduction, the net income tax rate for a single filer making $20k is 3.75%. For a couple filing jointly it's 0 up through $25.5k/yr.
In both cases, the EITC guarantees those with at least one child a (substantially) negative effective tax rate, while single child-free filers are left with about a 2.6% effective rate.
I'm not sure the scale of this being taken advantage off though but it's well know benifit if you situation allows.
Two theories: 1) Maybe it’s better for everyone to feel like they are ‘chipping in’ … for pride and unity.
2) Maybe the government is really invested in knowing what everyone makes, regardless of the net on it.
Because you want people to feel like they have skin in the game.
There's gonna be a lot of comments in here saying ^^ but unironically. It's just ingrained in the fabric of our society.
It's actually kind of amusing to think about what a marginal rate over 100% would lead to. If the top bracket is $1M+ and you earn $100M, and that last $99M is taxed at 102%, then you owe roughly $101M of your $100M earned, leaving you negative for the year. Better not go above the max! Quick! Donate that $99M in order to maximize your earnings!
Yeah, you could also pay your workers a lot more and take less yourself. But in that case you'd spend the whole year working to make what you could make in 1/100 of the year. So again, what's the point?
So I suspect a >100% (or even >90%) marginal tax rate would have a lot of very negative side effects. (Keep in mind that back when the top rate was officially >90%, there were so many loopholes that nobody actually paid that. Closing the loopholes and drastically lowering the top rate was actually revenue-neutral.)
You'd likely have a hard time getting them to come back the next year. Who is going to take a job that pays a normal daily wage but only employs you for three days? And can you really ramp the org back up up in three days? Maybe you'd be better off working for a few days then handing the job off to someone else for the rest of the year. Even then, good luck convincing the board that you're doing anything worthwhile coming in 3 days per year.
I think the equilibrium for this would be fascinating.
It seems like when it first started, it only taxed the rich and at a very low rate. Then it expanded from there, to the point where 20% was the min and 91% was the max. Then lower to what we have now.
Better yet, do overall tax burden rather than just income tax.
Everyone loves to get a good ideological circle jerk going over the nominal 1950s rates but the actual tax burden at (various different points on the income spectrum) paints a very, very, different picture.
Do you have this data? I'd be very interested in this picture.
The economy overall grew by 37% during the 1950s. At the end of the decade, the median American family had 30% more purchasing power than at the beginning. Inflation was minimal, in part because of Eisenhower's efforts to balance the federal budget.
Unemployment remained low, about 4.5%.
It took nearly 20 years to rebuild Europe to the point that it could compete, and USSR was largely cut off from global supply in western worlds.
It’s not the same today and one cannot possibly assert with a straight face that we would enjoy a decade of 37% growth with those rates.
https://taxfoundation.org/taxes-on-the-rich-1950s-not-high/
Average rate paid by the 1% back then was around 41%
"The data comes from a recent paper by Thomas Piketty, Emmanuel Saez, and Gabriel Zucman that attempts to account for all federal, state, and local taxes paid by different groups of Americans over the last 100 years"
But regardless, it was higher in 1950, almost 6 points higher.
And look at al the caveats...
1] Some of the distributional assumptions in the Piketty, Saez, and Zucman paper are questionable. In particular, the authors assume that the full burden of the corporate income tax falls on owners of capital, which may not be correct. However, the authors note that they “have tested a number of alternative tax incidence assumptions, and found only second-order effects.”
[3] It is worth noting that, per the Piketty, Saez, and Zucman data, the tax rates of the top 0.1 and 0.01 percent of taxpayers have dropped substantially since the 1950s. The average tax rate on the 0.1 percent highest-income Americans was 50.6 percent in the 1950s, compared to 39.8 percent today. The average tax rate on the top 0.01 percent was 55.3 percent in the 1950s, compared to 40.8 percent today.
[4] The data from Piketty, Saez, and Zucman is not divided among federal, state, and local taxes, so it is difficult to tell exactly how much the rich were paying in federal income taxes specifically during this period.
What is then "fair"? 94% ? Do you have a formula? At least a principle. If I make $100 MM (I don't), should I pay 50%, 60%, 70%? I mean, even if I pay 99%, I still retain more than 99% of the Americans, right?
Brains here clearly in overdrive trying to elicit all the vaguely possible excuses and attenuations, everything but confronting the hard fact staring them in the face on a G-damn spreadsheet.
Folks, it doesn't get more straightforward than a spreadsheet. Income tax in the US was higher in the mid-1900s than it is today in Europe.
Arranging your income to reduce the tax paid in accordance with the law isn't tax evasion.
Compare these days, where we have 12% min and 37% max for 10k and 500k respectively.
If we were to tax at 37% using 1961 threshholds, you'd have to be making 95k inflation adjusted (that's the 38% threshhold), or 10k nominally.
Something else I found fascinating was that we had over 25 brackets back in the day. I can only imagine the headache that would be without an Excel spreadsheet.
People (myself included) might complain about taxes now, I can only imagine in the 60s.
Thanks for the insights, OP.
For example, 401k, IRA, 529, 403b, etc didn't exist. A lot of states and localities didn't have income taxes at that time either. If the deductions and overall tax code was simpler, then calculating the brackets would be easy - you're basically taking the percent times each bracket max until you get to your top bracket, then the amount in that bracket times that percent.
My understanding is that most people could do their taxes just based on the instructions on the back of the form just because there weren't so many deductions, credits, and complicated securities/instruments.
I couldn't find info on the deductions, but this was interesting.
I have to imagine that the IRS tax tables aren't a recent creation, so the math should have been similarly easy.
Also, loans don't evade the capital gains tax, they merely delay it. Stepped-up basis is what evades the capital gains tax.
99% of the borrowing is coming from people worth close to a billion or more (0.001%).
It’s nauseating but evasion (a legal term) and avoidance are taken as the same morally compromised position now.
Sure, but you're being quite disingenuous with your post by suggesting that tax rates were any different back then compared to now.
Again, just me brainstorming loopholes.
Also, carrying ever-increasing loans (including loans to pay the interest on the previous loans) until you die means you pay a lot of interest! The "buy, borrow, die" strategy only works if you withdraw about 1% per year or less, otherwise the loan interest will catch up to you, and eventually you'll be at risk of losing everything to margin calls. Meanwhile if you withdraw normally without loans, then you can withdraw more like 4% per year indefinitely and have way more money to spend per year even after paying tax. So "buy, borrow, die" only works for huge fortunes where you didn't plan to withdraw more than 1% per year anyway. It's not something that most rich people are going to do. It severely limits your cash flow during your lifetime simply for the sake of saving taxes for your heirs.
The people complaining about these loans have no idea how it actually works.
Not that I'm one complaining about the loans, but so you have a link to how it works?
I didn't mean they directly use it like that, which is why I mortgage in quotes. I thought there's a specific type of small corp the wealthy use to avoid/reduce taxes by going through a sort of conversion.
You can borrow against anything, if someone is willing to lend
Collateralized lending is the least constructive of all
Make it worth their while
I have a formula and a principle. Anyone earning $100 MM or above should pay the same effective percentage as the median taxpayer... relative to their wealth.
The median US household has a net worth of $120k and pays about $10k in taxes each year. That equates to an 8% wealth tax.
If a billionaire has $1 MM in income one year, they could pay $2 MM in tax and not even notice, despite that being a 200% effective income tax rate. What matters, in terms of "fairness", is what that burden feels like, which is losing 0.2% of their wealth (assuming wealth of exactly $1000 MM). For the median household that would be like paying $240 in taxes.
Note that this doesn't even take into account the law of diminishing marginal returns, which states that the millionth dollar matters less to someone than their first dollar, so the millionth dollar should be taxed at a higher rate for the same hedonic burden.
I think you proposed a reasonable option, but a bit imprecise. It's not clear if you advocate for a wealth-based tax, or some type of crossover tax, like a max between an income-based tax and a wealth-based tax. In any case, a lot of people (and especially a lot of startup oriented people, like readers of the HN forum) are against taxes on unrealized gains, which is what your proposal would end up to be.
As for the temporarily embarassed millionaire. I have a different reason to oppose taxing the wealthy. In my native country there's a saying that roughly translates "it's easy to prescribe 10 whiplashes to someone else's buttocks".
I personally find profoundly immoral to wish a category of people to suffer, when you know that you are not in that category. Now, you may say that the rich people don't "suffer" when they pay more taxes, but I don't know that. I believe in the benefit of doubt. As far as I'm concerned, if someone is rich, they deserve to enjoy the fruits of their labor, not to a lesser extent than me. I personally know lots, really lots of people who work much harder than me, and make more money than me. They have chosen to forgo or postpone gratification in life, and I chose not to. I can clamor for them to now forgo their reward, but I simply find that immoral.
A simple question would be - how does the loan ever get paid off?
A simple point would be that not paying taxes on loans is not some crazy loophole that only the rich have access to. Literally anyone who has ever taken out a mortgage for a house or a loan for a car has taken advantage of this - I'd guess at least 80% of adults in America have a car or home loan.
Who is "us all" I'm calling wrong? Are you part of a group of tax ignorant fellows with HarryHirsch? Is it a group of people who get their understanding of tax code from r/antiwork?
Delaying taxes is not the same as avoiding or evading them.
> like a max between an income-based tax and a wealth-based tax.
I'm not sure if you mean "mix" or "max" but I think my answer might be yes to both. :) What I'm proposing is that the rich continue to pay an income tax like everyone else, but above a certain wealth threshold they need to be assessed for paying a wealth tax. Any amount they pay in income tax can be counted towards their wealth tax, so they don't get double-taxed and don't have to worry about paying more than the median citizen (proportionally).
> I believe in the benefit of doubt.
The best philosophical approach to this that I've found is Rawls's "veil of ignorance"[0] thought experiment. While it is difficult to completely rule out the possibility of bias when asking someone to come up with a policy that has harsher effects on people who aren't like them, I feel confident that I would be willing to trade my current place for the place of a billionaire living in the sort of society I'm proposing.
> As far as I'm concerned, if someone is rich, they deserve to enjoy the fruits of their labor, not to a lesser extent than me.
What if the rich person became rich by inheriting money, or winning the lottery, or being lucky in some other way (e.g. finding oil on their property, or being born with the looks of a supermodel, or being the first to patent an obvious idea)? Societies do try to address these issues with different policy measures, but all I am asking is that the rich "suffer" the same amount as everyone else (i.e. as the median person in their society).
Paying a given dollar amount in tax obviously feels much hard if you have close to that amount in assets, compared to if you have so much money that it's literally uncountable and you wouldn't notice if that given amount were taken from you. So I think it is the poor that we should be giving the benefit of the doubt to when they say that the current system is unfair to them.
> I personally know lots, really lots of people who work much harder than me, and make more money than me.
And I know people who work much harder than me, and make less money than me, because the market doesn't value their work in the same way as it values mine. Sadly I see more people trying to protect the status quo for idle billionaires than trying to change the system so that the hard-working poor are rewarded according to their intrinsic worth as human beings, rather than how little the rich can get away with paying them for the value extracted from them.
It means a transaction was reported and that you better have a good story about why the tax isn’t due and why you didn’t report it on your own forms
The people that are worried about the venmo 1099 are the people that have not been doing a lot more under the table
(Not to invalidate the rest of the population that is just irrationally afraid of tax collectors)
That said, based on personal experience, I don't think Venmo is sending 1099s to everyone above that cumulative amount. I do believe they categorize transfers based on personal or commercial use. I expect a 1099 to be issued only for the commercial transfers.
1099s just tell the IRS to look for a tax filing from the same tax ID that matches.
