The Tax Brackets Should Go All The Way Up

 

In his Wednesday post, Sir Charles says:

Personally, I think all of the Bush tax cuts should be phased out in all income levels and that a couple of higher brackets -- a 45% and a 50% bracket -- should be added to kick in when incomes reach $750,000 and $1.5 million.

I fully agree with this, and then some.

The reality is that some people have annual incomes that dwarf $1.5 million.  And it's my belief that they should hit new brackets all the way up.  The brackets should be spread far apart so that there's no question of 1970s-style 'bracket creep', but if someone made $600 million in a year, he should pay a higher rate on his last dollar of income than someone who made 'only' $100 million.  And if someone were to have income of $5 billion in a year, he should pay a higher rate on his top dollar than the $600 million guy.

So I think there should be additional brackets at, say, $5 million (55% tax rate), $10 million (60%), $40 million (65%), $100 million (70%), $400 million (75%), $1 billion (80%), $5 billion (85%), and even $10 billion (90%).  Someday someone will have that much annual income, if they haven't already. 

I'd argue that this principle should apply even more so to the Federal estate tax, which after a certain point should become all but confiscatory. 

Currently, the first $5 million of the value of a decedent's estate is exempt from tax.  I'm OK with that part, because it mostly shuts up the nincompoops who claim that the tax is going to force the breakup of a family farm or the sale of a family business.  (It wouldn't be true anyway: the tax from such an estate can be spread out over 15 years.)  But the tax is only 35% on the excess, so someone who dies with an estate of $50 billion can pass $32.5 billion to the kids.

Nobody should get that sort of money just for having chosen the right set of parents.  And this year, we've seen the downside of individuals having so much money that they can dump tens of millions of dollars into a political campaign that even they know is probably going nowhere.  It can't hurt to reduce the number of people who've gotten that sort of money without having had to do anything to get it.

If the Bush tax cuts were to lapse at the end of this year (and the Democratic position should be to let them all lapse, then negotiate an "Obama tax cut" targeted more at the lower brackets), the Federal estate tax rate would return to 55%, with the first $1 million exempted. 

Like I said, I'm OK with keeping that at the current $5 million.  But the 55% rate shouldn't be dropped; in fact, the same brackets that apply to income above that number should apply to the estate tax too, only with additional brackets at $40 billion (95%) and $100 billion (99%).

It isn't like the heirs to billionaires would be hurting under this plan.  Persons leaving $1 billion in their estates under such a tax regime could pass $280 million to their heirs; they'd be able to get by somehow.

I realize, of course, that none of this is anywhere close to politically feasible as things stand.  But it won't ever get any closer to feasible if we never propose the idea in the first place.  So I'm proposing it: tax brackets ought to go all the way up.

Comments

[paula b]

I figured you would choose "Taxman."

[kathy a.]

wasn't the top tax bracket 40-50 years ago something like 90%

anyway -- there are a lot of pretty wealthy people whose rates have been cut cut cut. the argument we have, which has the advantage of being true, is that it is unfair for the super-wealthy to pay less proportionately than regular people. it is unfair that unearned income has a lower tax rate -- sure, they might have invested well, but that's not as meaningful as labor.

the estate tax seems to me a fake issue. first, the exemption is extremely high, and maybe it should be lowered. but secondly, anybody with property worth that much can get legal help to structure things -- a family farm might be held in a joint tenancy, so ownership transfers by operation of law to the survivors; or a trust can own the stuff, and divide it upon death, so no one person is getting the whole caboodle, and they'll pay taxes on their piece only. etc.

i don't see complete tax reform happening all in one swoop, and don't think we need to take on the entire fight about how much more to tax the very richest right now. (those people have bundles of money, you know, and we do not.)

but the fairness arguments have legs, and upping for the more wealthy is a logical answer to all the yelling about budget deficits, so we need to cut cut cut things that benefit the many. the very well off have in fact benefited greatly from both public infrastructure and from the labor of those down the ladder. (and frequently from choosing the right parents.)

[oddjob]

wasn't the top tax bracket 40-50 years ago something like 90%

Back in the 1950's, shortly after WWII and if I had to guess I'd assume it was that high primarily in order to pay off debt accumulated during that war.

(Actually paying off war debts instead of just accumulating them without even budgeting for them... Who knew?)

[big bad wolf]

taxman is my least favorite beatles song

[Linkmeister]

Historical Tax Brackets.

Right before Reagan's 1982 TEFRA restructuring the highest bracket was 70% on income over $532K if married filing jointly. The income subject to 70% rates for married filing separately and for single was ~$266K.

[Linkmeister]

Dammit. I thought I could use html to link. Okay, here's the URL:
http://www.taxfoundation.org/publications/show/151.htmlU.S

[Linkmeister]

Ah. Whoops. It took the first time. Sorry for the confusion.

[Sir Charles]

bbw,

Not a favorite of mine either, although I think the Beatles were subject to a marginal rate of 90% in 1960s England, so you can at least see what inspired it. It was actually the rare moment in time where the Laffer Curve may have actually been a true. Witness the huge number of rock 'n' roll tax exiles from England shortly thereafter.

Oh, and it's a George song.

The opening bass and drum riff -- which is the best part of the song -- was blatantly stolen by Paul Weller for the Jam song "Start." One of those inspired bits of thievery as tribute.

[big bad wolf]

i know it, SC, but it still pains me. one hates to see smart, joyful young people caught up in tax complaints and they were huge by that time so obviously their complaint in song was bound to spread wide and have unfortunate effects, especially since it is catchy as hell.

[big bad wolf]

the captcha for my last comment was " unsullied objectre." i take this as an endorsement of my work ;)

[Sir Charles]

Agreed. (Remember it made the Top 50 Conservative Song List -- although "Bodies" by the Sex Pistols was my personal favorites choice on that list.)

I think there might be some sort of avant garde project that can be done with the various captcha words and pseudo word combinations.

[beckya57]

@bbw: LOL!

I agree with kathy that the fairness argument is the best political strategy, the one that resonates with the public.

Not my favorite Beatles either, though I think I have it on my iPhone. I actively hate "Baby You're a Rich Man." I know this is heresy, but I am actually not much of a Beatles fan. I was always totally on the Rolling Stones' side of that argument. Even though they made us wait 4 hours for a concert once, which was infuriating (no explanation), but I still love their music.

[beckya57]

Wow, that captcha should have gone to kathy or Sir C: "law-fuit."

[Sir Charles]

Hey Becky,

Not that big on Baby You're a Rich Man, although the Beatles song catalogue writ large is pretty astonishing.

Strangely enough, despite my deep love for them, I've never seen the Stones. (bbw is chagrined.)

I think it may have been an unwillingness to accept that it wasn't 1969 or 1972, which is sort of silly. (I did compromise and see the Who in 1979 even though Keith Moon was no longer among us -- and I was not disappointed.)

The Stones have long been notorious for late starts.

[kathy a.]

thanks, linkmeister, for clarifying. such a good idea to look things up! (my cluttered mind must have conflated the 90% rate in england...)

the argument that we need to keep cutting taxes to boost the economy is so bogus. rich people sock their money away, hoping it will grow lovely profits; or they buy competitors, which used to be more on the illegal side, but cornering the market is another lovely way to jack up prices and grow profits. their personal economic fabulousness is not the same as general economic health in our communities.

tax money goes right into circulation -- it pays public employees and contractors, supports infrastructure projects that also create jobs, pays down debt (and interest payments). social support items especially go right into circulation -- poor people use their money on rent, food, essentials; school programs and health coverage not only provide necessary services but create jobs. if people are buying, more people are employed and more businesses can stay alive.

the idea of continuing to slash public expenditures while cutting taxes is horrible. sure, maybe there are some places where there could be more efficiency. but we've seen a lot of slashing of regulatory agencies over the years. (does anyone believe, for example, the financial industry or food safety or public health need less oversight?) we are seeing horrible cuts to education and in other areas still. may i remind everyone that public jobs are jobs, and jobs are a sign of economic health?

[Linkmeister]

kathy a, "we are seeing horrible cuts to education"

and, oddly enough, those cuts contribute directly to the increase in unemployment among working-age women. We Dems should be shouting about that when we hear Republicans say they're on women's "side."

[nancy]

may i remind everyone that public jobs are jobs, and jobs are a sign of economic health?

Ever since Ronnie, the belief that people who work in government are practically receiving lifetime sinecure-type handouts has not been properly shot down by Dems. Government waste and all that -- as though there is no waste in the private sector because it's lean and mean, by inclination and necessity.

The CEO of the privately-held public utility that supplies the power to turn on my lights hit 3.5M last year. I bet I could locate some excess [waste] there somewhere.

This local utility this was the source of cheap and abundant hydroelectricity, made possible with federal projects and public payrolls, that powered the Kaiser aluminum rolling mills which operated round-the-clock, shortening the length of WWII. Once the Texas CEOs arrived in the Enron era, salaries soared as did our power bills. No longer about the 'lights' but the shareholders, baby.

I guess I just can't be made to understand, from down here at ground level, what catastrophes might occur without that 3.5M in compensation.

[nancy]

Ha. I don't need a spellcheck, but an extra-word-in-wrong-place check.

This local utility this was the source of cheap and abundant ...

captcha included Egalité. captcha has a sense of humor?

[kathy a.]

we are missing some public education about why "robber barons" got their nickname; why there was such a thing as anti-monopoly legislation; and all the terribleness that follows from de-regulation (financial industries, meat industries, power industries, you name it); among other things.

nancy, that's quite amazing, having a privately-held public utility with a CEO raking it in so very extravagantly. can we revisit the public benefits of public and regulated utilities? and how private for-profit companies have benefited from public works?

i've been re-reading molly again -- this time "bushwackers" -- and everything she was talking about in 2003 is still relevant. i'll be damned, but she pretty much has the republican agenda nailed. a few developments -- bin laden and saddam hussein are history, and we have a democratic president now -- but damn, she is particularly good on the strength of right-wing themes. everybody should read molly.

[kathy a.]

nancy, you would particularly like the passages about enron, i think.

[Crissa]

I firmly believe we should have tax brackets based upon what incomes are actually attained, not specific population levels or whatever. Like, based upon how far from minimum wage they are or something, not a tax that hits 1% or 50% of the country. If one person can spend billions like the average person can spend $5, that one person owes a heck of alot more to the country's operation - like defense - than most everyon else in aggregate.

[low-tech cyclist]

Looks like the blog fairies have decided to let me in to my own thread!

kathy - there are a lot of ways of having assets pass outside of probate, but for the most part that doesn't make them taxable. If Mitt Romney decides to add his sons' names to the deeds to his houses, the houses won't be probated, but they will be part of Mitt's taxable estate.

That isn't to say there aren't ways of reducing the exposure of one's estate to the taxman. My stepfather managed the most effective of these by dying in 2010, but that's further than most people were willing to go to avoid estate taxes.

There are other things you can do, like moving assets into a trust that you think are likely to grow in value over time. You're only liable for estate/gift tax on the value of your contribution to the trust, not on its ultimate value. But that involves a fair degree of foresight.

Really the most effective way of dodging estate tax is to lobby to lower the tax rate, which they've done quite successfully.

[Phoenician in a time of Romans]

So I think there should be additional brackets at, say, $5 million (55% tax rate), $10 million (60%), $40 million (65%), $100 million (70%), $400 million (75%), $1 billion (80%), $5 billion (85%), and even $10 billion (90%). Someday someone will have that much annual income, if they haven't already.

Based on this analysis, I'd suggest the top rate be more along the lines of 64% - but we can kick it in to affect the top 1%, say at around $500,000. Or maybe $5 million - I dunno.

http://www.angrybearblog.com/2011/10/by-mike-kimel-ive-been-writing-about.html

But there shouldn't be any difference in taxation between income from work or capital gains.

As regards estate taxation, I'd seriously consider a proposal I saw in the New Statesman (IIRC) - 100% estate taxation. The money taken from confiscating *all* wealth when someone dies would be matched by a gift to *all* 18 year olds - which I guess may come out as $50,000 or $100,000. They can use it to educate themselves, start a business, travel, or buy a hell of a lot of weed - but everyone would have an equal *opportunity* to start off in life with that leg up.

[Crissa]

That's why I think it's important for the tax rates to affect the top incomes, not some portion of the population. If someone is making a billion dollars, we want a tax bracket for that. And it ought to be pretty severe. If we cap out our tax brackets at a piddly million dollars - someone who can only spend $100 to the lower 50%'s $1 - how will that affect the guy who can spend a million dollars like it's a poor person's $1.

They should be based upon how far they are from the median population.