dagblog - Comments for "The Beauty of High Marginal Tax Rates on the 1%"

Oxy Mora — Fri, 23 Oct 2015 02:47:26 +0000

A one owner LLC is treated like a sole proprietorship.Even If the profit is left in the business it still has to be on the return.

I don't think a co-owned LLC can simply leave profits in a business as retained earnings without paying taxes on it.

If a co-owned LLC wants to retain profits, they can elect to file as a corporation and possibly get a lower tax rate than individual rates. Then they can use the balance for cap ex, etc.

I think LLC losses can be taken onto individual returns---which is why folks in startup businesses like the form.

Don't know the relative numbers of LLC's to Corporations. It's really not clear that this wealthier group we're talking about (Not super wealthy) would tend to have more LLC's. Doubt it.

I'm more or less with you on more progressive income tax rates but the entire picture of capital gains, estate, state taxes, small business incentives, corporate taxes, real estate mortgage deductions---to mention a few must be part of a comprehensive plan. Otherwise, people will just shift around to try to get the best overall rate.

Most small businesses are

HSG — Thu, 22 Oct 2015 23:55:30 +0000

In reply to You scare the hell out of me.

Most small businesses are incorporated as LLCs. Limited liability companies are not subject to corporate income taxes. Instead, net revenue is passed through to the owners as taxable income. If, towards the end of the taxable year, the books show that the business has done particularly well, the principal or principals may decide it would be sensible to make capital investments and perhaps hire a few people or give out bonuses rather than keep the cash for distribution to the owners if doing so means their total net income will be above the cut-off for very high rates.

Regarding corporate tax breaks, the code is what several thousand pages long, I don't have the time, energy, or knowledge to rewrite every provision. Generally, I recommend simplifying and reducing corporate tax rates.

In response to your contention that a family with two highly paid professionals who together earn over $500,000 isn't that unique, I pointed out that only 1 out every 200 families earn this much or more. There's a related reason not to be concerned about these very fortunate few. Spouses who each earn $450,000 almost certainly file would file separately.

You scare the hell out of me.

Oxy Mora — Thu, 22 Oct 2015 18:15:17 +0000

In reply to Per whatismypercent.com, only

You scare the hell out of me. Where's Jeb!?, might vote for him.

By "plow the money" back in, you mean what's left after all the corporate taxes have been paid?

BTW, you gonna eliminate corporate tax breaks--like accelerated depreciation?

Per whatismypercent.com, only

HSG — Thu, 22 Oct 2015 16:43:28 +0000

In reply to My 500 K was for a joint

Per whatismypercent.com, only .5% of American households have an income at or above $500,000. Again, the successful small business people who recoil at paying 50 cents on every dollar earned over the first half a million can plow the money right back into their business thereby avoiding the tax bite. This is, as I point out, part of the beauty of high marginal tax rates on the 1% (actually it's .5%).

This sliver of the American populace, unlike every other, has a great deal of control over what it's actual Adjusted Net Income will be. When faced with the option of reinvesting money in the business till or taking it as income and paying 1/2 or more to the government in taxes, many business owners will opt for the former. Assuming thousands of businesspeople make a similar choice, we'll have more employment, higher wages, and stronger small businesses. Win!

If you're suggesting that

HSG — Thu, 22 Oct 2015 16:31:00 +0000

In reply to And if that pop star makes

If you're suggesting that income can only be deferred to the extent that it's invested in an approved vehicle, this certainly seems sensible. If the investments go south in a hurry, the losses could be deducted immediately so the taxpayer isn't stuck with an IRS bill she can't pay.

And if that pop star makes

PeraclesPlease — Thu, 22 Oct 2015 15:40:42 +0000

In reply to One of several points I make

And if that pop star makes $20 million and blows it all by the next year, where does the tax payment come from? Or you create a trust system for them? (I think this already exists)

My 500 K was for a joint

Oxy Mora — Thu, 22 Oct 2015 15:40:31 +0000

In reply to One of several points I make

My 500 K was for a joint return. (Not me by any stretch)

What defines a pop star?

"Rant" was a compliment. I take it back.

Under your administration, businesses would be "welcome to invest profits as they see fit". Well, welcome to the Comintern, comrade.

One of several points I make

HSG — Thu, 22 Oct 2015 12:32:00 +0000

In reply to Thanks for posting Hal. And

One of several points I make is that much higher top marginal tax rates on top earners reduces their incentive to engage in shoddy accounting or as I wrote, "the ultimate reward for putting one over on creditors won’t be nearly as great."

$500,000 per annum is an extraordinarily high income. Only a miniscule number of Americans - about .5% (yes that's a decimal point in front of the 5) - come close to this figure. I wish I was breathing the rarefied air where this is viewed as a "ridiculously low" amount to start taxing at 50% - which is certainly not a confiscatory rate.

Very successful small business owners, who are resistant to paying 50% marginal rates, are welcome to reinvest potential profits above $500,000 into capital improvements and higher wages for their employees.

Regarding capital gains, I'm with you there. Let's include them in regular income, as we should dividends, and tax all on the same schedule.

The best argument against very high tax rates starting at or below $1 million is that they can really hurt people who make huge amounts of money but only for a short time. Professional athletes, models, many pop stars all come to mind. In order to protect them, top earners should have the right to take their income over a 20-year period. So, a pop star who earns $20 million in one year but disappears the next could declare $1 million/year over two decades. She'd still pay much more in taxes, under my proposal, than she does now but she'd end up with far more than if the entire $20 million had to be declared in the first year.

I wasn't writing about the estate tax. But, we need to have more and higher tax rates on very sizable estates as well.

Obviously, what I propose would begin the process of redistributing the wealth that is in the hands of the few.

Rant: "speak or shout at length in a wild, impassioned way".

Maybe you can point to one sentence or phrase in my blog that meets this definition because I sure can't find any.

Thanks for posting Hal. And

Oxy Mora — Wed, 21 Oct 2015 23:55:11 +0000

In reply to The Beauty of High Marginal Tax Rates on the 1%

Thanks for posting Hal. And far be it from me to throw cold water on a great rant against the 1% but to be serious about remedies I don't think one can buttress an argument for higher marginal income tax rates with a rant against crooked lawyers and financial types because, well, they are crooked, and the vast majority of wealthy aren't. And when one speaks of wealth, is it income or assets?. Many of the wealthy, by virtue of assets, minimize, legally, their reported income---so it is capital gains taxes that are operative. Stiglitz concluded that most of the upward shift in "wealth" in the recent past resulted from the lowering of capital gains taxes.

In any case, the starting point of five hundred K for confiscatory tax rates is ridiculously low. It would really hurt entrepreneurs and small business owners. (And please don't mess around with the capital gains exclusion on the sale of real estate.) The local hardware store owner is easily over that amount and he might decide to close the business and move to Santa Cruz.

The Central banks pumped in 12 Trillion of cheap money into the system in order to pump up asset prices, which it did, and my understanding is that most of it went to the already wealthy. Please tell me a good way to redistribute the 12 Trillion and you will have my undivided attention.