Obama's get rich quick scheme: Adopting a VAT Tax.

[archibaldcrane]

So what are we pinpointing as the meteoric rise of the 1%ers? Outsourcing labor to cheap countries to boost company bottom lines, wall street corruption, what? I mean, people who kept their jobs, didn't buy or refi their house during the bubble, but weren't invested in the stock market (in theory) came out "the best" in the downturn, right? Wouldn't the super rich have gotten slaughtered when the dow plummeted from 14000 to 6800? Granted, most of that has been recovered since Obama got elected (paradoxically considering how fearful the wealthy seem to be of him) but yeah.

And Aurik - you could say that the prosperity of the top 1% relative to the rest is the problem, but for my money the lower 90% gaining no (inflation-adjusted) ground income wise over the past 20 years is the real problem. Obviously the two are tied into each other but I worry more about the huge populace in the 90% more than the 1% or .1% at the top.

[aurik]

Archi, the problem we are discussing is not that the bottom 20% has seen no improvement, but rather that wealth is becoming increasingly polarized, and there are very solid studies that show that wealth polarization is a large contributor to societal ills. Therefore, one way to "cure" these ills is to address wealth polarization. The question is, how?

(As a pure sidenote, US per-capita GDP has increased by a large amount since, say, 1980. However, since the vast majority of that increase in value has been allocated to the top few percentiles, the quality of life for the majority of Americans has actually gone down or stayed level, and has underperformed quite drastically when compared to counterparts in other G7 nations)

[archibaldcrane]

Archi, the problem we are discussing is not that the bottom 20% has seen no improvement

90%*
http://img.photobucket.com/albums/v2...Picture2-3.png
What I'm saying is that this (the first half of this pic above) is what I see as a bigger problem than the polarization (but they are related).

[Max™]

90%*
http://img.photobucket.com/albums/v2...Picture2-3.png
What I'm saying is that this (the first half of this pic above) is what I see as a bigger problem than the polarization (but they are related).

This is definitely the problem.

A sign of a healthy economy is not when a single group prospers, and the vast majority show no gain, or worse show a loss.

[aurik]

They sure are: the economy can't safely grow at infinite rates, and currently the wealthy are absorbing almost all of the gains. You know the saying "a rising tide lefts all boats"? Not so true. When you also consider that health care costs have increased way faster than inflation from 1980 to 2010, it's no wonder that the middle class feels squeezed.

Personally I think progressive taxes are the way to go, such as income taxes that increase to very high rates above extreme thresholds. IE, a 50% marginal tax rate above 1m in income, and disallow deductions / offsets against this. IE, if you have deductions, they apply against money taxed at the marginal rate for sub-$1m rate first. I know that someone will bring it up, so let me preemptively point out that Laffer curve arguments don't apply until ~65% or so.

[Rhinox]

Nigga knows his taxes.

Sent from my PC36100 using Tapatalk

[archibaldcrane]

http://img.photobucket.com/albums/v2...Picture4-2.png
Rich people are crazy good at not paying taxes.

[SwampdonkeyPLD]

I'm taking that class next semester. Hopefully I get to see how they do it.

[archibaldcrane]

I'm taking that class next semester. Hopefully I get to see how they do it.

Yeah seriously. Once you hit $34,001 - every dollar beyond that is taxed at 25% for federal alone. The idea that ON AVERAGE, people making a million dollars or more a year (people making more than $950,000 that -should- be taxed at 25% or higher, most of it taxed at 35%), paid less than 25% of their income in federal taxes, is amazing.

[SwampdonkeyPLD]

Yeah seriously. Once you hit $34,001 - every dollar beyond that is taxed at 25% for federal alone. The idea that ON AVERAGE, people making a million dollars or more a year (people making more than $950,000 that -should- be taxed at 25% or higher, most of it taxed at 35%), paid less than 25% of their income in federal taxes, is amazing.

Without knowing much my guess is that it partly involves the type of income. For example, a money manager, I can't remember which, is taxed on either the profits from his money managing or his commission for simply showing up in the office, but not both. Or, the rate is dramatically different for the types. Something like that.

Edit: Or maybe that's just one minute example.

[archibaldcrane]

I mean...is it all about ...like...if you're making 1M+ a year - most of that is going to be in stock options and the like right? Not salary or cash bonuses I'd think? Are those "payments" not taxable until they are sold and realized as capital gains? That seems kinda strange doesn't it?

I consider myself to be a financially savvy person who knows a good amount about taxes and a decent amount about corporations, but I do not understand how this works.

[SwampdonkeyPLD]

I don't either, yet hopefully. There was a recent article about Google's tax rate being 2.47%. The article explained how Google did it, and that will likely be beyond the scope of the class, it was pretty nifty how they did it. It might involve strategies like that.

Edit: Here's an article on it, not sure if it's the one I initially read.

http://www.bloomberg.com/news/2010-1...loopholes.html

[archibaldcrane]

Not sure if this one still works, but it's extremely clever as well:

http://www.commondreams.org/headlines02/0728-09.htm

[Olo401]

I don't either, yet hopefully. There was a recent article about Google's tax rate being 2.47%. The article explained how Google did it, and that will likely be beyond the scope of the class, it was pretty nifty how they did it. It might involve strategies like that.

Edit: Here's an article on it, not sure if it's the one I initially read.

http://www.bloomberg.com/news/2010-1...loopholes.html

I read this the other day.. FANTASTIC article, and extremely eye-opening. Corporations that used this tax avoidance scheme prevented the U.S. Treasury from collecting over 50 Billion Dollars in 2009 ALONE. IIRC the article also mentions that Google is teaching many other companies how to do exactly the same trick.

[aurik]

It's legal and they have a fiduciary duty to their shareholders to pursue tax deductions to the maximum extent of the law.

Also rich people pay less of their income in taxes for several reasons, one of them being long term capital gains tax is way low. Capped at 15%. Long term is defined as holding an asset for more than 1 year. So, if a significant portion of your income is mainly from appreciating assets, your average tax rate is going to be quite a bit lower than that top marginal rate. Furthermore, any deductions you can take generally come off of the highest-taxed income chunk first. So, if you make a ton of money taxed at 15% long-term cap gain, then spend it on deductible expenses, you actually deduct at the highest tax rate.

Thats a bit complex so let me simplify: For deductible expenses, upper-class people get to spend that money at up to a 35% discount (every $100 actually only costs $65) even though their overall tax rate is somewhere in the 25% range. People who are in the upper middle class, on the other hand, pay a similar tax rate around 25%, but money spent towards deductible expenses only comes at a ~25% discount (every $100 actually costs $75).

Do note that exercising stock options is treated as immediate compensation, not cap gains. You can only declare cap gains on the appreciation of the stock after the point where you exercise it, and if you want to cap your tax liability at the long term rate, you need to hold onto the stock for at least 1 year after exercising.

[SwampdonkeyPLD]

It's legal and they have a fiduciary duty to their shareholders to pursue tax deductions to the maximum extent of the law.

Not quite. As long as they have a valid reason for not doing it, for example, "creating goodwill with the public & the govt.," then they wouldn't be violating that duty.

[Max™]

"Don't be evil."

Google is supposed to operate according to that statement.

[aurik]

If they did that, then they would need to list that as an expense in their books. As a publicly traded company, they have responsibilities to their shareholders. One of those responsibilities is to provide a fair and complete accounting, so that shareholders can make informed judgments. That's how capitalism is supposed to work. Don't tell WorldCom that.