Asymptotic Tax Rates and Other Games

Andrew Cuomo wants to let the millionaire’s tax in New York state disappear. This is bad timing, as downstate is currently protesting to put more taxes on whatever the current definition of rich is. He’s sympathetic with them. He supports a national millionaire’s tax. Cuomo’s problem is that a New York state tax on the wealthy is driving them out of the state.

The irony is laughable. This tax is popular with most of the public. It’s the bread and butter of the Democratic Party. It is already law. Still, Cuomo is against it. I assume that besides driving out millionaires, it is also reducing overall revenue to the state. His solution is for all states to enter a suicide pact where every millionaire in the US is under the same tax. It’s a good thing there aren’t other countries in the world they could go and pay less tax. Oh, wait.

While I’m in international territory, let’s look at something really interesting. Wealth distribution figures are hard for me to get a handle on. There’s this group of 1% who have 40% of the wealth. 10% (including that 1%) have 70% of the wealth. So, 90% of the 10% have 30% of the wealth. That means each percent of the bottom 9% of the of the top 10% only have about 3% of the wealth in each percentile. That means the top wealthiest 1% has, on average, 13 times the wealth of someone in the next 9%. Those rich bastards.

But those in the 91-99 percentile can relax knowing that the lower 90% have only 30% of the wealth. On average, that group only has 0.33% of the wealth for each percentile. The 9% group has only about 9 times as much wealth as the 90% below them in each percentile. Even if the multiple is lower, the bottom 90% seems to be more angry about it. So there’s that.

So, how does that work out in terms of taxes? Well, the only tax on wealth is the estate tax levied at death. Let’s look at income tax instead. The top 1%, those guys with 40% of the wealth, pay 40% of the taxes. It may be more, because they own the stock in companies that pay corporate income taxes. The bottom 47% or so pays no income tax. They make around $25,000 or less per year. That’s terrible. How can you live on that?

Well, it turns out the rest of the world has to. We are the home of wealth as well as wealth inequality. While the average percentile in the bottom 90% has only 1/20th of the top 10% in wealth, the average person in India has 1/100th of the wealth of the average American. Around the world, the top 1% has 40% of the wealth too, but the top 10% has a whopping 85% of wealth globally.

So, how do we kill the rich redistribute income make them pay correct the disparity? Because of the large variation in income, you would need an asymptotic tax. This is the opposite of a flat tax. The rate would go up higher and higher for each income level until there was an effective maximum income. Rosanne Barr/Arnold, whose net worth is $80 million, suggested the limit be $100 million. Let’s start with income. The smallest sliver of income I could find was the 0.12% who earn above $1.6 million or more. that’s about 135,000 households. The low end of the scale already pays half a million, so let’s call the maximum income about $1 million. For those who make $10 million, like the established actors at the protests, they would pay a 90% tax rate. If you make $100 million, you would pay an unprecedented 99% tax rate. Of course, Warren Buffet only made $63 million, so he’d only have to pay about 96% and he’d be glad to pay it.

Only idiots think taxation is the solution to economic inequality. Even the people who want the rich to pay higher taxes want to use that money to invest in job creation or infrastructure. If I had any confidence such wise use would be made of taxes, I’d have an easier time supporting it. This administration has already failed with borrowed money. Are they going to do any better with extracted money?

About 1539days

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28 Responses to Asymptotic Tax Rates and Other Games

  1. yttik says:

    One way you can correct inequality is to remove the obstacles that lay in front of micro businesses and the self employed. Hong Kong did it by making it very simple for somebody to sell coffee cups, for example. Within an hour you can have a business license, very cheaply. It’s legal to set up a table on the street. You paid a flat 15% tax. Hong Kong was booming. In India it practically takes an act of congress to start a micro business. You have to get on a waiting list, have a hearing, and then prove to the committee that your business is worthwhile and beneficial to the country.

    The US falls somewhere in between, but in my state, we have mandated business insurance, a bond, registration with the dept of revenue, a vendors permit, a UBI number, a city business license, a county business license, a state business license, an L&I account, and a UI account. That’s to sell coffee cups. If you’re going to go into a building trade or food service, there’s another 8 or nine hoops to jump through.

    • 1539days says:

      I saw John Stossel start a business in an hour in Hong Kong on 20/20 years ago.

      • yttik says:

        Yes, there you go! Countries that make it very easy for the little people to participate in capitalism, thrive. Countries that don’t, have a lot of poverty. Parts of Africa for example, it’s so normal to have to bribe public officials that you can actually deduct it on your taxes as a business expense. Poverty is rampant, and this is partly why. Civil wars, turmoil, and Gov corruption, seriously stifle your ability to earn a living.

        One problem with the US lately is that we’ve called for more and more regulations and more and more complex tax codes and loop holes. It’s gotten so restrictive, they’re now busting kids for lemonade stands and auditing people for not paying taxes on their garage sales or ebay accounts. Meanwhile the Gov steps in and bails out huge companies and provides corporate welfare to big corporations. The little guy can’t compete.

    • WMCB says:

      Hubby and I were discussing the whole insane amount of regulations debacle tonight, and were making an analogy with what is happening in our schools. It seems some school has come up with a new idiot rule that a student can leave class to go to the bathroom exactly 3 times a semester.

      Do you need rules? Absolutely. And you need to ENFORCE them on the kids who are a problem. But too often schools (and govt) take the lazy way out – instead of actually going after those who are causing the problem, they just make up a bunch of stupid-ass rules that punish those who were NOT doing anything wrong in the first place.

      Our entire regulatory structure needs to be refocused on “stop the wrong-doers“, not on “any time there is a problem make 47 rules that punish everyone.”

  2. Three Wickets says:

    Days, the Buffet tax on millionaires is not “already law” as you suggest. It failed to pass last week. It you’re talking about the hgher marginal NY state tax on income portions over $200k which expires at the end of this year, that’s not really a millionaires tax. Why confuse it with the Buffet tax.

  3. murphy says:

    I just like to say the word “asymptotic.” That is all.

  4. sandress says:

    I guess I’m an idiot, then. Because it seems like in every other country on earth nobody objects to taxing the rich and using that money to subsidize the services that disproportionately serve the poor and middle class.

    • Three Wickets says:

      Honk. Obviously.

    • DandyTiger says:

      I think some guy with a beard talked about such things once.

    • 1539days says:

      Ah, but those are two separate actions, and I reserve the idiocy for those who think higher taxes creates equality. If you think taxation for the purpose of social programs, at least it’s about tax policy and not social justice.

      Actually, we do have some of the lowest personal (and capital gains) taxes in the world. At the same time, we have the second highest corporate income tax in the world. One of the tax cuts of the Clinton Administration was on corporate tax rates. Just recently, he advocated cutting them even further to be competitive with the rest of the world.

      That’s about tax policy and not the nebulous idea of fairness. The top tax rate was about 4% higher than now under the Clinton Administration. That would give us less than $200 billion in additional revenue per year. If we were to lower corporate tax rates, it might mean less revenue, but it might mean more capital freed up to hire people or expand a business.

  5. Three Wickets says:

    Just got home Days, read the rest of your post after the Cuomo bit. I have absolutely no idea what you are trying to say with all the numbers. Taxes are bad? Was that the basic point. 🙂

    • 1539days says:

      Taxes are morally neutral. They are not good or bad, Taxes on the rich are frequently bad for revenue. If the rich are as bad as they are portrayed, I would assume they would do whatever they can to avoid taxes. Rush Limbaugh and Glenn Beck decided to leave NY. While I’m sure many won’t miss them, they will miss their tax money.

      Income inequality is relative. If you were globally minded, anyone with an income over $2,000 a year should be paying a global tax to correct the injustice of global poverty.

      We’d have to essentially take all of some incomes to make things “fair.”

  6. r u reddy says:

    Isn’t it exactly what we did here up through the Eisenhower Administration period? And didn’t the Kennedy tax cuts leave the taxes on rising bracket levels asymptotic, only less so? And did it drive rich people out of America during the Fourties, Fifties, Sixties, and Seventies?

    I read somewhere (I wish I read where) that during the Eisehower Administration period the average difference between an industrial worker’s pay and an industrial CEO’s pay was 40 times. After the Reagan tax supercuts on high brakcets, the difference started widening to the 400 times of today. A reason offered for why that 400 times difference didn’t exist during the Eisehnower Administration period with its sharply progressymptotic ( progressive + asymptotic) rate rises on bracket rises was that . . . corporate boards saw no reason to pay out corporate money to executive salaries rising into levels where most of the money would be taxed away by the Federal Government.

    I have read that engineered wealth-inequality has been forced up
    to levels not prevailing since just before the Great Depression in this country. This whole post looks like an excuse for wealth disparity-inequity engineering to me.

    We all paid higher taxes during the Clinton Administration. We were
    paying down our debt. If we let the Bush era tax cuts sunset as the law
    still calls for, we could use that money for debt paydown just as we were during the Clinton period. Would we? I don’t know. But we could. We did just that during the Clinton Administration.

    • r u reddy says:

      (I wish I “read” where? Surely I meant to mean . . . I wish I “remember” where.)

    • Three Wickets says:

      Ratio of CEO Pay to Average Worker by Country Interesting comparison across developed nations. Japan is lowest at 11:1 and the US is highest at 475:1. Maybe we should go back to top marginal rates at 90% under Eisenhower, or at 70% during Reagan’s first term. Because extreme wealth disparity in the US is real, and the fact that OWS may mostly be a politically engineered carnival doesn’t make the widening wealth disparity in the nation any less real. Republicans need to work on that message for next year. At least Sarah had that message from main street crystal clear. Right now, most of the Republican candidates rhetoric on the economy sound like wealth/bonus class talking points, which is remarkable to me given the economic pain most people are enduring.

      • r u reddy says:

        Yes, Three Wickets, I think we should. The Eisenhower Administration period was recognized as a time of general and rising prosperity.

        Of course we didn’t have the burden of Free Trade Slavery to labor under at that time. We would have to abolish Free Trade to make possible any re-development of our de-developed country.

        Taxing our money back from the predasitic upper classes who have extracted it from us is not “extraction”. It is counter extraction or anti-extraction, if one prefers. Idle chatter about “India” does not alter the nature of upper class aggression and organized predasitism here. If that sort of thing gets me banned here, so be it.

        Figures lie when liars figure. “Truth there was, well mixed with lies . . . to baffle the fools and fool the wise>” I got that last quote from Charles Walters, the founder , publisher, and editor of Acres USA; Amneric’a preemier agriculture-scince and practice publ periodical.

        • r u reddy says:

          pardon my mispellings, I can’t see what I am typing when the lines go behind the ugly icons.

        • 1539days says:

          I had to ditch IE for Firefox. Problem solved.

        • 1539days says:

          Wow. All this love for the Eisenhower / Nixon administration. It’s like a Republican blog here 😛

          Predastic isn’t a word. I think you mean predatory. Of course, the 50s are over. These evil predatory corporations have many options for both production and incorporation now. You would find taking money from the wealthy industrialist will be more difficult now.

          Like I said, we already took trillions in borrowed money and used it for various failed programs. You can blame the failure on Obama or the Republicans or whomever, but what would be the point of giving more tax revenue to be spent by the same idiots who already failed. All it would prove is that they aren’t Keynesians anymore.

      • 1539days says:

        You’re in luck. Japan recently got out of their lost decade, where the country experienced stagnation for most of the 1990s. It tended to keep CEO pay down, not raise worker pay. The US seems headed in that direction. I don’t see it helping tax revenue, though.

        • Three Wickets says:

          Days, I worked in Japan during the 90s. CEOs and workers got paid pretty much the same before during and after their lost decade. They had other kinds of dislocations, but egregiously excessive executive compensation as we have in the US was not one of them.

          Regardless of politics, accurate, clear information and analysis can be a wonderful thing on blogs. All that matters to me.

  7. r u reddy says:

    Predasitic is a new word which I just coined. It is a combination of predatory and parasitic. If enough people like it and start using it, then it will become an accepted “real” word. If they don’t, then it will
    slink off to the graveyard of failed neologisms.

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