Comments on: Class Warfare Statistics

By: Knucklehead

Knucklehead — Tue, 17 Oct 2006 21:59:41 +0000

Thanks, Mishu. I wasn’t aware that Russia had a flat tax system. But you stated my point much better than I did. If the cost of avoidance is higher than the tax, those rotten rich folks will pay the tax. All they want is as much of their… ooops, sorry, OUR money, as they can manage to hang on to. Devious rats, aren’t they.

By: mishu

mishu — Tue, 17 Oct 2006 20:14:09 +0000

I believe Sandy is referring to Russia's flat tax Knucklehead. Since there is a simple form of taxation, opportunity costs for tax avoidance is very high. I would imagine the cost of tax avoidance could be jail if you lived in earned income and lived in Russia. The other alternative would be not to live in Russia. You would then risk losing your income or being taxed at a higher rate.

By: Knucklehead

Knucklehead — Tue, 17 Oct 2006 15:19:25 +0000

Sandy P,

I often wish to pay you great compliment but this one is decidely tepid. You have accomplished no great feat in losing me entirely. What “worked in Russia”, praytell?

By: Sandy P

Sandy P — Tue, 17 Oct 2006 14:55:42 +0000

Worked in Russia, knucklehead.

By: Knucklehead

Knucklehead — Tue, 17 Oct 2006 14:14:41 +0000

Nate,

Not necessarily. For one thing, if a significant portion of the increased taxes paid by the top income quintile is, in fact, a direct result of AMT bracket creep then those paying the AMT would probably understand that their best hope for getting the bracket adjusted, or their tax rate lowered, lies with Republicans rather than Democrats.

Another consideration is the cost of tax avoidance. The wealthy are notorious for tax avoidance regardless of the fact that they pay the bulk of the taxes collected. To pull some numbers out of the air for the sake of example, consider the wealthy person who, without tax avoidance schemes, would owe $100. By spending $20 they can avoid $40 tax. The net saving is, of course, $20 with the tax now $60 and the avoidance cost $20 for a total of $80.

If the tax rate is reduced sufficiently the gain available from, compared with the cost for, avoidance may become not worth the effort. If the tax owed were $75 rather than our original $100, and the cost for $15 avoidance to bring the tax to $60 was, for example, $15 there’d be no point in paying it since the total cost is $75 either way. Now Uncle has gotten $75 rather than $60 and the wealthy taxpayer is $5 better off.

Obvously that is preposterously simplistic but it is obvious that people do some rather convoluted, and often quite expensive, things to avoid taxes. Financial machinations they would not otherwise do. Only the super-rich are idealistic about money. The merely well off just want to keep what they can. Reduce the tax rate sufficiently and they’ll pay rather than avoid since the cost of avoidance is not zero.

By: LotharBot

LotharBot — Tue, 17 Oct 2006 05:42:18 +0000

nate, they profit because of government funding, not because it’s a good investment opportunity. The profit comes from Uncle Sam handing money to teachers, administrators, and curriculum developers (most of whom are good people doing the best they can; don’t get me wrong there.) And the system continues to suck, because it’s structurally unable to do otherwise.

Smart investors wouldn’t invest in that even if they could — there are much better places to make profit.

By: nate zuckerman

nate zuckerman — Mon, 16 Oct 2006 20:57:14 +0000

If that is accurate,then doesn’t it make sense for smart and fairly wealthy people to vbotez Democratic, since that is where they will make their money grow?

By: Knucklehead

Knucklehead — Mon, 16 Oct 2006 20:38:47 +0000

Can one of you economist types have a look at this wrt the Alternative Minimum Tax. The net effect is the same but I suspect much of the increased tax paid by the highest quintile is due to bracket creep into ATM territory.

By: david foster

david foster — Mon, 16 Oct 2006 20:12:55 +0000

There is indeed more class mobility than “progressives” want to admit. But there are also some disturbing tendencies. The complete failure of the K-12 schools in many areas puts great barriers in front of kids whose parents cannot afford alternatives. And the increasing obsession with graduate education, and with “elite” college degrees, places additional barriers in front of many.

Interestingly, it is the industry controlled by the “progressives”–education–that is arguably doing most to inhibit social mobility, and also profiting from this situation.

By: dearieme

dearieme — Mon, 16 Oct 2006 18:55:07 +0000

“such economic classes are far less unchanging, and far more fluid, in the United States than in most other places.” But most places are hellholes: how does the US compare with other advanced economies?

By: LotharBot

LotharBot — Mon, 16 Oct 2006 16:49:56 +0000

My wife and I were talking about this the other day (related: her myspace entry on wealth). American “classes” are not like historical classes in other countries. There’s an incredible amount of mobility between them — upward due to hard work; downward due to substance abuse, divorce, and so on. There’s also an incredible amount of association between the members of very different classes. When I was in public school, college, or grad school, I almost always had (at a minimum) one friend who was much, much richer than me and one friend who was much, much poorer than me. One of the churches I attended for a long time has a free hot breakfast on Sunday mornings that attracts the neighborhood’s homeless, and some of them stay for service and sit in the pews with well-paid engineers, single moms, and everything in between. When I worked as a museum educator I’d see school groups from incredibly poor areas (like Grand Coulee Dam, where students come mostly from the reservations) and I’d visit incredibly expensive private schools. The same is probably true in every sport and martial art I’ve been a part of. And then there’s my internet friends — everyone from poor college students to people who own successful companies. I associate with people from every class, and I know I’m not the only one. Heck, I’ve been a part of the “poor college student” class and I’ve been a part of the “highly paid engineer” class myself.

All this is to say, I think American voters really DO understand this fluidity. I think most people can identify with at least parts of what I just wrote.

By: Sandy P

Sandy P — Mon, 16 Oct 2006 15:53:19 +0000

We have a friend who is in a side biz of real estate and is very aggressive taking deductions.

He actually had to pay taxes last year. I know “the rich” are paying more.