21–30 of 38 posts
Ever used a road? Or went to a public school? Do you have a local library? Your tax money doesn't go to the government, it goes to the state. And yes, the state has an expensive administration, but by and large the state is all of us.
47.62% is the top marginal fully loaded tax rate on ordinary income. That is, 35% individual federal plus 8.97% state tax plus 3.88% city, less rounding and maybe a few dollars of unused credits. This is the rate on the next dollar of ordinary income (and the number you use if you wish to maximize your claimed tax rate). The claimed capital gains number of 27.63% is 15% plus that same amount for state and local taxes, which do not treat capital income differently (the .62% on the end of both is the giveaway). Neither of these numbers is an effective tax rate (=tax actually paid/pretax income), or "tax pressure," whatever that is -- at my guess, Mr. Wilson probably pays effective tax in the 30-40% range, depending on how much capital gains he realized in the year.
On capital gains rates generally, tax does work on the margins, but this means that we should worry about what kind of investments are incentivized by lower capital gains rates. I seriously doubt that a Mr. Wilson taxed at the regular income rate for capital gains would put even one fewer dollar into his fund, making 20+% pretax, if his other choice were, as he says, the mattress making 0%. Even at equal income and capital gains rates, the incentive to maximize your returns is pretty strong, so the idea that the differential rate is changing behavior in a useful way needs more analysis than Mr. Wilson gives it.
For corporate taxes, effective rates are indeed what matters when comparing tax burdens since corporations get such a variety of credits; that said, the fewer deductions/lower rates tradeoff is free economic growth and we should do it (it'll never happen, though, since congress is too dysfunctional).
And last on "double taxation": gopi is right that most corporations are organized as passthrough entities -- they pass all income through to their owners, who then pay tax on it. Those that aren't do have lower taxation of dividends to make up for the equivalence of share buyback and dividends.
The thrust of this post is wrong; while I'm looking for a good breakdown of tax burden by quintile I'll just observe: "We live in NYC and according to our accountants, we pay a marginal fully loaded tax rate of 47.62%. That means we keep about half of the ordinary income the Gotham Gal and I generate." The second sentence glides over the key word in the first sentence, "marginal". AVC and GG pay much lower rates on t…
I understood this sentence, and I think it's the most likely explanation, that the total tax pressure is 47.62%. That lower brackets are taxed lower doesn't matter. As one makes more, the total tax pressure will approach the tax rate of the highest bracket; in other words, if the lower brackets are a marginal amount of the total, the lower brackets don't matter very much are more. I'm just waiting for someone to calc…
Nope, he says it's the marginal rate. See my comment above.
> And when you go to the pay window [...], you will be sharing a lot less with the government and keeping a lot more. Ever used a road? Or went to a public school? Do you have a local library? Your tax money doesn't go to the government, it goes to the state. And yes, the state has an expensive administration, but by and large the state is all of us.
Earlier quoted context omitted.
When dealing with corporate tax rates one should talk about effective tax rate. There are quite a few examples of corporations paying very little tax on their profits. Some even pay zero tax whilst making billions in profit. I believe that the effective tax rate on U.S. corporations is roughly the industrialized nation average. Having no corporate tax would make the U.S. an outlier in terms of tax policy. This doesn'…
Some even pay zero tax whilst making billions in profit. Yes, typically because they lost billions in prior years. Sometimes also due to various tax subsidies (e.g., green energy tax credits in the case of GE). Are the tax policies of most nations unfair to corporations? I didn't say it was unfair to corporations. I don't believe that a claim like "unfair to corporations" even makes logical sense. I said it was unfai…
There is nothing illogical with the phrase "unfair to corporations". A corporation is a person in the U.S. Is is it illogical to say, "unfair to people"? It can be said of a policy that it is unfair to corporations. Suppose the only entities that were taxed were corporate entities. In such a case one would reasonably say that the tax structure was unfair to corporations.
Owners of a corporation are stock holders. They make a profit on their holding via dividends and selling the stock at a higher price than what they bought it for. I disagree that it is unfair to a stock holder to pay taxes on the dividends received or on the capital gains. I believe it is a sound principle - for the maintenance of consistency, which is what fairness really is about in this issue - that entities that make a profit pay tax on it.
Earlier quoted context omitted.
Yes, instead of paying taxes directly, the corporations owned by those 400 taxpayers paid taxes on profits (15-35%). Then their owners paid an additional 15-35% tax on those profits (averaging out to 17% for the top 400). I agree - we should make it fairer. We should eliminate taxes on corporations and replace it with taxes on their owners. It's unfair that the owners of corporations are taxed at such high rates, but…
When dealing with corporate tax rates one should talk about effective tax rate. There are quite a few examples of corporations paying very little tax on their profits. Some even pay zero tax whilst making billions in profit. I believe that the effective tax rate on U.S. corporations is roughly the industrialized nation average. Having no corporate tax would make the U.S. an outlier in terms of tax policy. This doesn'…
You are missing the exact point.
If this business were owned as a sole proprietorship, then the owner would indeed claim the $100,000 as income and be taxed on it.
If the business were owned as a C-corporation with only one shareholder, then the business would pay corporate taxes on any profits. Then, if the owner wants to have immediate access to those profits, she needs to distribute them to herself as a dividend. She would then pay taxes AGAIN, on the same income, since dividends are taxable.
So, the second entrepreneur, just by virtue of owning a corporation, could be subject to a higher tax rate for the same income.
That said, if one were to entirely eliminate the corporate income tax, then it would be all too easy to stockpile gains inside a corporation and let them compound tax-free until withdrawal, which would be a pretty nice tax shelter.
Earlier quoted context omitted.
I understood this sentence, and I think it's the most likely explanation, that the total tax pressure is 47.62%. That lower brackets are taxed lower doesn't matter. As one makes more, the total tax pressure will approach the tax rate of the highest bracket; in other words, if the lower brackets are a marginal amount of the total, the lower brackets don't matter very much are more. I'm just waiting for someone to calc…
"That said, I don't think this error was made in this article, and that the 47.62 is the net, effective tax burden." Nope, he says it's the marginal rate. See my comment above.
Earlier quoted context omitted.
Some even pay zero tax whilst making billions in profit. Yes, typically because they lost billions in prior years. Sometimes also due to various tax subsidies (e.g., green energy tax credits in the case of GE). Are the tax policies of most nations unfair to corporations? I didn't say it was unfair to corporations. I don't believe that a claim like "unfair to corporations" even makes logical sense. I said it was unfai…
In the example provided, the business does not pay tax on the $100,000 given to the owner (as salary or other form of compensation) as that is an expense of the business. The business only pays tax on the profits to the business (as an entity separate from the owner). There is nothing illogical with the phrase "unfair to corporations". A corporation is a person in the U.S. Is is it illogical to say, "unfair to people…
The business does pay tax on profits and spends after tax dollars distributing dividends to shareholders. Similarly, after tax dollars contribute to a corporate valuation which enables owners to sell shares and take capital gains.
A corporation is a person in the U.S.
The term "person" has been overloaded and you are conflating different uses of the term. A corporation is a legal person, which means they can enter contracts, file lawsuits and be sued. This provides a common interface for counterparties, nothing more.
A corporation is a set of assets, liabilities, a web of contracts governing the management of said assets/liabilities and a government guarantee of limited liability. I can't see how it makes sense to discuss whether something is unfair to my company. Similarly, it makes no sense discussing whether something is unfair to my cell phone and service contract.
I disagree that it is unfair to a stock holder to pay taxes on the dividends received or on the capital gains.
Me too.
All I said is that it's unfair to tax profits to the tune of $20k, dividends to the tune of $15k, and then pretend the owner of the corporation is only paying $15k in taxes.
If you want to discuss the taxes paid by the top 400 taxpayers in the US, include the corporate taxes paid by the companies they own.
Earlier quoted context omitted.
When dealing with corporate tax rates one should talk about effective tax rate. There are quite a few examples of corporations paying very little tax on their profits. Some even pay zero tax whilst making billions in profit. I believe that the effective tax rate on U.S. corporations is roughly the industrialized nation average. Having no corporate tax would make the U.S. an outlier in terms of tax policy. This doesn'…
Imagine a business with one owner. The owner employs 5 workers. Shouldn't the business pay tax on the profits? Suppose the business owner makes a profit of $100,000. Should this be tax free because he/she owns a business? If the business owner made $100,000 while working at 3M then the salary (profit) would be taxed. You are missing the exact point. If this business were owned as a sole proprietorship, then the owner…
If the business (as an entity separate from the owner) decides to pay a dividend then whoever gets the dividend pays a tax on the money. Suppose the business decides to give me a dividend of $20,000 and I have nothing to do with the business. Shouldn't I pay tax on it? There shouldn't be a distinction on who gets their dividends taxed. A dividend is a dividend.
If the owner wanted $120,000 in salary then the owner should have paid herself $120,000. If she decides to give me a $20,000 dividend then I should pay tax on that dividend. If she decides to give herself a dividend then I she should pay a tax on that dividend. A dividend to herself is no more worthy of a tax break than a dividend to me.
In the interest of consistency (fairness) the guiding principle is that an entity pay tax on money it gets after expenses. It also makes things easier.
Earlier quoted context omitted.
In the example provided, the business does not pay tax on the $100,000 given to the owner (as salary or other form of compensation) as that is an expense of the business. The business only pays tax on the profits to the business (as an entity separate from the owner). There is nothing illogical with the phrase "unfair to corporations". A corporation is a person in the U.S. Is is it illogical to say, "unfair to people…
You are conflating salaries and dividends. The business doesn't pay tax on $100k salary (it's an expense) and the owner pays ordinary income tax on that. The same is true for pass-through corporations, which make up a large fraction of the profitable corporations that pay no taxes. The business does pay tax on profits and spends after tax dollars distributing dividends to shareholders. Similarly, after tax dollars co…
"I said it was unfair to their owners. Consider your hypothetical business owner. Out of the $100k in profits, the business pays perhaps $20k. The business owner then pays another $15k. But then people trying to score political points complain that he is getting away with something, and paying only $15k on $80k (19%). I think that's unfair."
I thought you were talking about salary. Sorry for the confusion.
I can't think of an example where it makes sense to say, "that isn't fair to your cell phone". I can think of lots of examples where it makes sense to say, "that isn't fair to cell phone providers [companies]".