Reagan-Lovers: Stop the Bull

[pjorourke]

Camile, I was using federal in the sense of say the national government of France. That government collects/disperses close to 30% of GDP although in some cases it may be done through more local vehicles.

The table below shows the total tax revenues (as a % of GDP) from all levels of government by country. The US is about 30% in total -- 20% at the federal level and half that at the state/local level. The Western European countries average about 42%. The 14% difference does not come from the wealth, it gets recycled from the middle class.

[Doove]

Originally Posted by CaptainMidnight

About the only way you can get a lot more money out of the wealthy is to confiscate it with something like a draconian net worth tax. I'm sure that would thrill many members of the wealth-envy crowd, but the blowback might be rather severe.

CM, it sounds as if your argument is to say that any effort to tax the wealthy is simply an effort in futility so why bother? And as your answer, let's just tax the middle class instead.

How about we just fix the tax code to allow the wealthy to be taxed at the rates they claim they're being taxed at, while whining about how oppressed they are? Since they do it anyways (whine, that is)

[Camille]

Well PJ you just shot my post to shit
TY PJ...sorry for jumping the gun!

xxx

[TexTushHog]

I"m not going to comment on all the back and forth, but fixing the problem of the gross underpayment by the top few income earners is easy. Tax capital gains and regular income rates once your gains get above a certain number, say $5k or $10k. And make income on muni bonds taxable after say the first $25k.

This isn't politically palatable because it will hit major party donors. But it would solve the problem.

[WTF]

Go to this link if you wanna see just WTF would have happened had Reagan just left well enough alone

http://zfacts.com/p/318.html







Who Gave Us the National Debt?
In 1981, the country had just elected Reagan to cure the "all-time-high, Trillion-Dollar debt." But compared with the size of the American economy, the debt was at its lowest point in fifty years (see graph). In eight years he pushed it from $1 to over $2.6 trillion. Or, did the Democrats do that? To find out, I checked the most pro-Reagan website, which lists Reagan's budgets and Congressional changes to the budgets. ...



The green line shows what would have happened if Reagan and the Bushes had just kept the debt growing at the same rate as the economy. That would make their parts flat. But Reganites claim Congress increased Reagan's budgets, so I have used their numbers to show how much debt that would have caused from 1981 until 1993. (Most of today's debt is from Reagan and the Bushes.)
WWII caused the debt to shoot up starting 1942 and reach 30% higher relative to the country's wealth than it is today. The economic stimulus of that debt pulled us out of the great depression and into high gear to win the war. (When to save / when to borrow.)

... In most years, according to the extremely pro-Reagan site, Congress increased Reagan's budgets. On top of that, this extra debt accrued interest. All told Congress's share of the increase totaled $0.29 trillion—but that's far less than the $1.60tn increase under Reagan.
The green line in the graph shows what would have happened if Reagan had proposed budgets that let the debt increase in step growing with inflation and the economy—if he had kept it at a constant fraction of GDP. That's not much to ask of a guy who said he'd do far better than before him, since every previous post-war president had actually reduced the debt as a fraction of GDP. The slight upward slope of the green line is due to the Congressional budget increases.
By the end of the Reagan-Bush 12-year "revolution," the extra debt they had piled on the country was costing the country an extra 2.6% of GDP in interest—$300 million a day. Without that interest working against him, Clinton would have paid down the debt much faster. That's why the green-line goes down so fast in the Clinton years. That's what would have happened without the Reagan-Bush interest burden.
Now if W. Bush had held the line almost as well as all presidents before Reagan, the national debt would have been only 9% of GDP, and the country would have been ready to pull itself out of the Great Recession with ease.
So how did Reagan, the great debt-slasher, go so far wrong? Partly it was his belief in supply-side "economics." This "theory" claims that when the government cuts taxes, especially taxes on corporations and the rich, it makes them so happy to keep more of their money that they work much harder, get richer, and pay even more taxes than before the tax cut. So the lower the tax rate, the more money the government collects to pay down the debt! Believe that happy talk, and you can run up quite debt.
Of course the rich loved this "theory" and fed the press many story about the wonders of the new supply-side "economics" (cooked up by Laffer, as a graduate student). Money talks, and a lot of people listened. It's time to rethink what radical conservative have done and are doing to our country. The Reagan-Bushes National Debt now totals $10.1 trillion by a most conservative estimate. That's the lions share of our present debt.

[pjorourke]

Originally Posted by TexTushHog

I"m not going to comment on all the back and forth, but fixing the problem of the gross underpayment by the top few income earners is easy. 1) Tax capital gains and regular income rates once your gains get above a certain number, say $5k or $10k. 2) And make income on muni bonds taxable after say the first $25k.

This isn't politically palatable because it will hit major party donors. But it would solve the problem.

1) No, it would freeze capital in place until sanity prevails -- remember, these people don't have to sell that investment to pay the mortgage. Capital is patient. If the after-tax return isn't there, why sell? You'd also see more tax-free exchanges of like property (e.g., 1036 exchanges) You would also drive capital out of the country to places where it is taxed more rationally.

2) It would drive muni-bond interest rates up to taxable rates further bankrupting state and local government.

[WTF]

In most years, according to the extremely pro-Reagan site, Congress increased Reagan's budgets. On top of that, this extra debt accrued interest. All told Congress's share of the increase totaled $0.29 trillion—but that's far less than the $1.60tn increase under Reagan.
The green line in the graph shows what would have happened if Reagan had proposed budgets that let the debt increase in step growing with inflation and the economy—if he had kept it at a constant fraction of GDP. That's not much to ask of a guy who said he'd do far better than before him, since every previous post-war president had actually reduced the debt as a fraction of GDP. The slight upward slope of the green line is due to the Congressional budget increases

[Rudyard K]

Originally Posted by pjorourke

1) No, it would freeze capital in place until sanity prevails -- remember, these people don't have to sell that investment to pay the mortgage. Capital is patient. If the after-tax return isn't there, why sell? You'd also see more tax-free exchanges of like property (e.g., 1036 exchanges) You would also drive capital out of the country to places where it is taxed more rationally.

2) It would drive muni-bond interest rates up to taxable rates further bankrupting state and local government.

Exactly!! There is no free lunch. As my Momma used to tell me..."Adam invented every way for a man to make a fool of himself."

[WTF]

Originally Posted by WTF

It's called an estate tax. Warren ought to have to spend it while he is alive or lose it! Gates too. That'd restart the race every generation.



.

They could all sit on the sideline until they died if all we did was fix the estate tax. Quit letting the rich shelter their money after death! They are like poker players who win big and then leave with all the chips and waiting to play a rigged game. One where they pay the dealer to deal off the bottom. If they are to scared to continue to play the game fine....let the people put the money back into the pot and start the game anew after they croak! Talk about a much fairer game, one in which death really does make us all equal. Generational Wealth is what we left Europe to get away from!









problem solved

[Guest032213-02]

I live in an apartment! SUCKERS!!!!

[Texas Contrarian]

PJ is exactly right.

I am amazed by the extent to which non-investors seem mystified by capital gains tax issues.

Since the tax is levied on realizations, not accumulated gains, investors can easily make choices that reduce their tax liability. When the rate is low (as it is now) the incentive to do so is limited. But if you were to increase the cap gains tax rate to, say, 35% (the current top rate on ordinary income) taxable realizations would dry up so fast it would make your head swim. For one thing, it would create an incentive to delay realization until the taxable gain could be partially or totally mitigated by offsetting losses in the same tax year. In the case of stocks and other financial assets, it's usually very easy to "protect" unrealized gains by means of options or other hedging strategies.

Another way investors can dodge the bullets is by simply borrowing against appreciated assets instead of selling them.

Scroll down and take a look at the chart posted on this site:

http://adamsmith.org/files/capital-gains-tax.pdf

You'll see a graph showing a very marked inverse correlation between the top tax rate on capital gains and taxable realizations.

And if policymakers actually did somehow manage to create a draconian capital gains tax increase in such a way that investors couldn't escape it, they would knock a few percentage points off stock values. People have actually written dissertations on modeling the dynamic effects of such changes. They have been exaggerated by some, but no credible, unbiased observer believes they are zero.

The large bulk of public equity is held by retirement accounts in one form or another. Beating up, even if just a little bit, on the retirement accounts of non-affluent working Americans would not seem to be great public policy.

About the only people benefiting from a large capital gains tax rate increase would be politicians who want to score cheap political points by appealing to a dumbed-down public that doesn't understand the issue.

As for municipal bonds, people often forget that you're not avoiding taxation if you buy them -- you're simply paying the tax (although typically at a lower rate) to an entity such as a state, city, or school district. The extent to which the yield is lower than a taxable instrument with a similar risk profile is the tax.

Stripping the tax-favored status from munis would simply create demands for even larger bailouts of profligate states. The administration and congress certainly wouldn't want to risk diminishing state and local politicians' abilities to buy the votes of public employee union members and other favored constituencies with other people's money.

[WTF]

Originally Posted by CaptainMidnight

PJ is exactly right.

I am amazed by the extent to which non-investors seem mystified by capital gains tax issues.

.

WOW...how would we ever survive a flat tax

[Texas Contrarian]

WTF, you keep talking about the estate tax, but do you realize that it collects very little revenue? It amounts to a small fraction of 1% of GDP. In fact, it is not even designed to raise much revenue -- that's why the rate has always been so high. Hardly anyone bites the bullet and pays it. The desire was to reduce intergenerational wealth transfers and incentivize charitable bequests, and I suppose it does a pretty good job of that.

If policymakers actually wanted to raise revenue from the estate tax, they would lower the rate to something like 10% or 15%. That way, a lot of wealthy people would simply arrange to pay the tax and bequeath their assets to the kids. Of course, the downside of that is that there would be a lot more Paris Hiltons.

The graph in post #82 has much more to do with spending than with tax policy. We already covered the issue of spending increases in the 1980s; there's nothing new here. But if you want to mention debt, I might just point out that the top of the graph will have to be raised by the time your beloved liberals finish their fiscal kamikaze mission.

And what in the world is the point of that confused cut & paste in post #80? It looks like nothing more than the clueless rant of a blogger who understands neither the factors that caused the Great Depression to end, nor the relationship between debt and prosperity. Apparently the site it came from is called zfacts.com. Maybe it should change its name to zmyths.com!

[pjorourke]

Originally Posted by CaptainMidnight

WTF, you keep talking about the estate tax, but do you realize that it collects very little revenue? It amounts to a small fraction of 1% of GDP. In fact, it is not even designed to raise much revenue -- that's why the rate has always been so high. Hardly anyone bites the bullet and pays it. The desire was to reduce intergenerational wealth transfers and incentivize charitable bequests, and I suppose it does a pretty good job of that.

Best presentation I ever saw on estate tax, the guy started by saying "When you die, they are going to give away your stuff. You can do it, or Uncle Sam will". That is really what estate taxes are all about.

[Camille]

PJ..you're getting as frisky with the graphs and charts as WTF is with his links
Keep 'em coming though...I love me a graph!

C x