military

Shouldn't the following statement...

go more like this?...

A key point that I don't think has been made: surely lifetime income is a better measure of who is "rich" than annual income. It is hard, for instance, to justify taxing a person who earned $250k in one year and $0 in the next year at a higher rate than someone who earned $150k in both years. So while a lawyer may have a much higher annual income than a janitor, a lawyer will work for few years than a janitor (and the janitor won't need to pay college tuition). Also, income can fluctuate from year to year in many professions, so someone earning $250k is quite likely to be having an unusually good year.

Furthermore, people with lower discount rates are more likely to have higher incomes, as they are more likely to save and invest. Many arguments against taxation are implicitly utilitarian ("they're not going to suffer much if they don't have a second house"). But by revealed preference, this is not so obvious. Suppose you and I both earn $50k a year and the prevailing interest rate is 5%. For simplicity, suppose our only options are

(a) Spend $50k in each of Year 1 and Year 2
(b) Spend $30k in Year 1, save $20k and then spend $71k in year 2

If I choose (a) and you choose (b), you will be richer in period 2 and will also have a higher lifetime income. Even assuming we can make interpersonal utility comparisons, can we really say that you are "better off" than me or that money has a "lower marginal utility" to me? Afterall, either of us could have chosen the other option - but our choices revealed our preferences. By saving a lot of money to spend in the second year, I revealed that I was patient and that my marginal utility did not decrease significantly as a function of income.

Now, it is difficult to maintain progressivity and avoid all horizontal inequities like this. So I'm not claiming that the tax system must therefore be reformed. Rather, tax thresholds should be shaded upwards to reflect that a "rich" income does not necessarily reflect a person as rich as it would imply.

I'd cut them all by half. Does that help?

You still don't understand the phrase "at the margin."

You say that cutting taxes is idiotic given the current economy, but the reason we are cutting taxes for the less well off is explicitly to help the economy.

The reason to let the tax cuts expire for the wealthy is to reduce the deficit. But the problems with the deficit are much bigger than this. In fact the looming future problems are so large that there isn't a tax increase that can be levied which would solve the problem. The eventual solution will have to come from spending cuts mostly to Medicare. Certainly a tax increase would help. But why would you want to tax income curbing productive activity when there are so many other things which would be preferable to tax.

The differences between capital gains and income taxes greatly distort investment decisions.

To fix the long run budget problems of the federal government there are really only three things that can be cut to make much of a difference, defense, social security and medicare (mostly medicare).

Defense, I agree with. Social Security isn't actually adding to the debt, but whatever. Medicare, you're correct, but the answer is to streamline delivery, not to cut benefits.

explain?

SS doesn't appear to be currently creating debt/deficit problems because it is accounted for in a stupid and irresponsible way (the government recognizes contributions in offset by benefit payments out as they occur, with no regard for the present value of projected future benefits that they cannot conceivably afford at projected future contribution rates). Accordingly, people think that SS is doing fine from a fiscal standpoint because they won't see the shortfall until big waves of benefits come due that cannot be paid.

What does this mean? Put more and more insurance companies out of business?

I think it means he's been listening to politicians.

FlyWf killing it. CRUDEFINDER's lack of understanding of the issue is so profound as to be the equivalent of a genius troll. Again, since cutting spending is essentially impossible (a more realistic proposal under the current and foreseeable executive/congress would be to discovering massive gold and oil reserves buried in the US), the question becomes how to allocate tax increases.

Bear in mind that things like welfare or foreign aid or earmarks or whatever pet programs the CRUDEFINDER's of the world lose sleep over make up a negligible portion of the federal budget.

He means death panels son. Death panels.

They are negligible in the sense of balancing the budget (which is obviously a very important sense) but when it comes to someone talking about actually balancing the budget I am more likely to take someone seriously if they actually lead by example by cutting something from the unnecessary spending add-ons than someone who just shrugs their shoulders and says "sure we waste lots of money, but it's not realistic to deal with that, it's only realistic to increase taxes". I mean, there has to be something to be said for actually fostering a culture of efficiency and responsibility among the people who are making decisions about where money will be spent. If we give them a free pass on handouts to themselves and their constituents how can we possibly expect them to tackle much bigger fiscal issues responsibly?

While I agree, the types of symbolic gestures often fought over never move beyond symbolic gestures. The republicans bitch about spending but never even suggest a realistic approach to cutting or even controlling it.

As far as I can tell, the British are actually getting their budget in order. However, they have major structural advantage over the US, whose system has evolved more to block than enable legislation, and the British seem to have a more rational pubic dialog.

You've got to be kidding.

See filibuster, bicameral legislature, executive veto.

See the Federal Register.

Sure, the Democrats and Republicans are both being idiots when it comes to the budget because neither will consider the possibility that their pet fiscal albatrosses are not sustainable. The change is either going to happen in a slow bleed or a crash, and the slow bleed won't happen as long as people continue to view the shortfall as something so large that a small bit more won't hurt. We see the consequences of this type of thinking every day in our personal lives because we see people with unsustainable and burdensome personal debt continue to make small "feel good" purchases on their credit card. Do you tell them that there's no point in "symbolic" acts like refraining from buying a new TV when they're $100,000 in debt? After all, it will hardly matter, and they get to enjoy all the benefits of a new TV!

I agree that our system is complex as hell (though I'm not sure the federal register should be considered legislation, but the US Code is plenty complex anyway).

The US system seems good for pointing the ship of state in a particular direction and pushing it forward. It's the steering we have trouble with (mainly because of the interests vested in continuing in a particular direction). For example, our student loan system is like a giant bank boondoggle and everyone knows it. Just try cutting defense or reforming Medicare and the system will grind to a halt and pulverize the legislation.

While I am by no means a supporter of tax the rich, quite the opposite in fact, this is an extremely valid point.

It was raised, but not explored in detail, by Robert Wright in The Moral Animal. Human beings are evolutionarily driven to obtain status, as high status males tend to have more progeny and high status females tend to attract males who invest larger degrees of parental investment. The net result is people will always try to do better than their neighbors.

The strong counterpoint to this line of reasoning is that people who know and accept their low status simply will work as little as possible when their necessities of living are met.

But let's be realistic, while I have issues with "progressive" taxation, it's not going to stop entrepreneurs.

Let's be realistic. There are many more businesses that are marginally profitable than there are businesses which are incredibly profitable.

They tried that approach with the tax cuts, where did the capital go? For the most part they placed it in hedge funds which had one priority, to make money on the margin, derivative, or whatever brand of parimutuel bet of fashion that day/week. It never made it to the economy.

If a straight tax cut program was the savior of economies, why did the debt increase? Well it did for some, but not for wealthiest, they managed to skim the profits from the top.

facepalm

Whoa, good point!