Wednesday, March 25, 2015

Wealth, Saving, Taxation and Fairness

There are a lot of interesting comments at  MP: MN's Tax System Fairer
and interesting facts at Tax Foundation: Comments on Who Pays

This is interesting , apparently some of the shrinkage is because people are now deemed wealthy.
CNN Middle Class is Getting Smaller

How can we get get kid's to take action on this good advice.
CNN 4 Ways to get Millenials to Save

It is pretty well aligned with a comment I left on that MP link.
"I am pretty much a couch potato investor. When I was in my 20's I kept my old truck and my wife's old citation and bought a 1200 sq ft (total) house. This allowed me to fully fund my 401K so that I could maximize the company's match. Which I invested in the the most aggressive diverse growth mutual fund. Now 25 years later that is a substantial nest egg.

This wasn't complicated, it just meant being disciplined enough to "live below my means", save, invest, stay the course through market crashes, etc. I realize this is hard for many people, however the idea that I owe more taxes because I did scrimp, save, invest, etc does seem silly to me.

That is unless one wants to encourage people to spend and live in debt..." G2A


Laurie said...

John, I don't understand your comment. Which taxes are you complaining about?

John said...

Does this clarify my position?

"I find the Tax Incidence Study and people with the author's view interesting, They seem to think that flat or progressive is the best thing for MN.

The reality is what does the Tax Incidence study look like for the other states? Just as States with relatively excellent welfare benefits will draw more poor people, States with relatively high tax rates will push away more high income / high net worth people. Especially those baby boomers who are free to take their wealth and move to a warmer climate for 6+ months per year.

Since the wealthy are already subjected to a very progressive federal tax system, why would they choose to stay in a state with the same once the kids are grown and they are retired? It would be like you choosing to pay more for a very similar product, which most people do not choose to do." G2A

John said...

I am not complaining about any tax in particular. I am commenting that Liberals seem to believe it is a good thing to make the MN Tax Incidence Study line flat or upward sloping.

Where as I think it will cost us in the long run to do this.

Laurie said...

So are you planning to leave the state for a lower tax state when you retire? I prefer MN to Florida, Arizona or Texas. I also prefer a high tax, high service stare to a low tax state.

btw, tax increases passed in 2013 were followed in 2014 with two tax cutting bills that reduced taxes in the upcoming FY 2016-17 biennium by around $1 billion.

John said...

I think many old folks will be okay with 6 months and 1 day in Florida, and 5 mths and 30 days in Minnesota. Especially if it saves them thousands of dollars per year.

Oh don't start on "tax cuts". They raised taxes on wealthy GOP Conservatives, and gave the tax cuts and/or cash to DFL voters.
MP 2nd Pkg
MP Smiles
MP GOP Blocking

And remember, they even left the marriage penalty in place while changing many other things to align with the Fed tax.

Tax Incidence 2015

Sean said...

So, for a thought experiment:

Let's say Herman Cain won the Presidency in 2012 and implemented his 9-9-9 tax plan -- a plan that would have created a scenario where the rich pay the lowest federal tax rates.


Would you then suggest that the state flip its tax system to be progressive? Should the state chase the feds to offset the progressivity or regressivity of the federal system?

jerrye92002 said...

Ah, yes, that deceptive ol' tax incidence study again. First of all, it deliberately excludes federal taxes. If it did, it would show that the total tax burden is, in fact, quite progressive. Second, this is always done in PERCENT, not actual dollars, so unless you are willing to say that the taxpayer making $500,000 per year gets 10 times the government benefits as somebody making $50,000/year, you have to say the tax code is OVERLY progressive, not regressive as the liberals and Democrats keep using this study to "prove." Third, the fact is that these progressive taxes not only create 10 times the burden in the example above, but 20, 50 or even 100 times the total tax payment, depending on which interval you choose. Finally, the "loopholes" that the rich supposedly exploit to get a lower percentage tax bill are a pure fantasy. Every single provision of the tax code was put in there by legislation, to "encourage" some sort of economic behavior. It's pretty stupid to then complain when people do what was being encouraged, for the tax benefits of doing it. And of course the most common "loophole" is home mortgage interest.

Most of all, these liberals seem to miss the most obvious solution to this supposed problem! If the taxes on lower incomes are higher (%) than the taxes on upper incomes, why not just LOWER the taxes for the lower incomes???

John said...

Brick City Link

John said...

I don't know about 9-9-9, so I have no view. I don't remember what you consider FAIR taxation. Here are the 3 ways I think about it.

1. Fair would be if we took the total cost of government, divided it by the number of adult able bodied citizens. And each adult then paid their fair share of the bill. (ie Dues concept)

2. Fair would be if total cost of government was divided by the total income of every adult able bodied citizen. And each citizen paid their fair share of the bill. (ie Percent of Winnings to the House Concept)

3. Fair would be if taxes and credits/programs were set to reduce the net income and wealth gap between the adult able bodied citizens. This means high income and wealthy people pay significantly higher rates than other citizens in attempt to attain a fair society.(ie Equalization concept)

Sean said...

OK, make it more general, then. If federal taxation flipped from progressive to regressive, should we likewise flip our state and local policies? Should we "chase" federal tax law?

jerrye92002 said...

I still say the way to fair taxation is through the FAIR tax. The biggest reason our current system is NOT fair is because every dollar seems to be treated differently for tax purposes, depending on how it is acquired and how it is spent.

The FAIR tax is perfectly progressive and based entirely disposable income, whereas our other taxes are on property, income, activities, etc. Our envy of the rich isn't their incomes, after all, it is their lavish spending, and the FAIR tax-- a national sales tax-- takes from that "excess." It is perfectly progressive because poverty-level spending is exempt, and since everybody pays the same exact percentage on purchases, those who spend the most pay the most. It also encourages savings, rebalances our import-export deficit, and gives us free Social Security reform, all while being price-neutral to the consumer and revenue-neutral to the government. What's not to like?

Herman Cain's 9-9-9 just didn't go far enough.

John said...

My bigger frustration is how Liberals want to use the Tax Incidence study. Like with their Equalization Concept of FAIR Tax/Spend policy, they have some vague concept of a FAIR society.

One where people who make bad decisions, don't work, unlucky, etc are owed food, housing, healthcare, clothing, etc just because they live within the borders of the USA. (ie social contract) And that government should take money from people "who have to much" to ensure the above happens.

By the way, I am fine with the "Percent of Winnings to the House Concept".

My point is that MN is in competition with the other 49 States. We want to draw people who strengthen our quality of life and economic strength, and dissuade people who want to weaken these. Therefore we should be using the "Tax Incidence study" results to determine where we are relative to the other 49 states, not relative to some arbitrary definition of FAIR.

Sean said...

"Therefore we should be using the "Tax Incidence study" results to determine where we are relative to the other 49 states, not relative to some arbitrary definition of FAIR."

What you're talking about is done in a different report produced by the Revenue Department.

I would argue they are both important.

Laurie said...

I think MN should leave taxes as they are. If we want to give people a tax break I'd give people a bigger deduction or credit for child care and higher ed.

Also, what do wealth and savings have to do with this topic of taxation and fairness?

John said...

Tax Rankings

John said...

I think these are probably more useful.
Most Progressive States
MSN Money: Best States for Taxes
Kiplinger: Worst State for Taxes

Guess which list MN is on...

jerrye92002 said...

Your "Percent of Winnings to the House Concept" is basically a flawed Flat Tax. Flawed because it does not exempt poverty-level income (making it highly regressive relative to disposable income), whereas most real Flat Tax proposals provide that exemption, making the "Flat tax" actually purely progressive on income. The PROBLEM is that you have to define income. Do you include long term capital gains? inheritance? Annuities? Social Security? The FAIR tax doesn't care where you get the money, and you don't pay taxes until you spend it on retail.

Sean said...

"I think these are probably more useful"

Golly, right-wing think tanks don't like our tax structure? Knock me over with a feather!

John said...

MSN Money and Kiplinger are "Right Wing Think Tanks"?

How about AARP ?

Another Kiplinger Link

BankRates Rankings

John said...

The reality is that old people with money read things like Kiplingers, MSN, AARP, and/or Forbes. I guess Liberals don't mind that they are going to take those HUGE IRAs and 401Ks elsewhere to start withdrawing that taxable money.

It is kind of humorous that SD beats us out...

jerrye92002 said...

SD? You mean where Mark Dayton parks HIS millions?

I find it highly instructive that the liberal millionaires who think "we" should pay more taxes almost never think THEY should pay more in taxes and actively work to avoid them, just like the rest of us. What they are mostly interested in is spending other people's money on things that make THEM feel good.

Sean said...

The MSN Money link is based on the same Tax Foundation data that you also linked to.

The reality is that the notion of "tax flight" is largely a myth. Do some people do it? Sure. But it's not a mass migration, a states don't generally see negative effects from it.

Here's a link that has several studies on this point.

jerrye92002 said...

Sean, I think the more important point might be to ask why any state would want to drive its most successful citizens out? And I don't think your statistics tell the whole story. Most of those million-dollar incomes are going to lock people in to the place where they are, while retirees tend to be locked in by home, friends and family. But get the taxes high enough and you start to overcome those strong reasons to stay. Why would you do that? And don't tell me "quality of life," because I don't think government has that much to do with it. We pay high taxes so that we can have fancy convention centers all over the state? Or more generous welfare benefits? Or an education system in which our largest districts fail to teach 50-70% of their students to read?

One of the common delusions among liberals is that they can raise taxes and those people will continue to blissfully pay those increased taxes rather than finding some way around them. Right now, for example, the state government wants to hire over $1 million worth of new enforcers for their greatly-increased cigarette taxes, because cigarette smuggling – in response to those taxes – has increased by an estimated million dollars. It's silly.

Sean said...

I don't think anyone has advocated for continually raising taxes or has argued that tax policy is completely unimportant. (And if they have, it wasn't me.) It's not my job to defend the strawman you created.

jerrye92002 said...

"It's not my job to defend the strawman you created."

Well said, but beneath you. By calling it a strawman you ARE attempting to argue against it by simple name-calling. Certainly I am stating a clear-cut difference(in relative tax environments) where there is really only a difference of degree, but to argue that there is no effective difference at all is missing the point.

Sean said...

"By calling it a strawman you ARE attempting to argue against it by simple name-calling."

What I am pointing out is that you are asserting my position is something it is not. (Nor, for that matter, do I believe that your construction represents the position of most that you would dub as "liberals".)

jerrye92002 said...

Sean, you are correct that I am assuming you take a "liberal" position on this issue, and that I am overgeneralizing about liberals. It is an unfortunate byproduct of the required brevity in this medium. Nonetheless, I think you are mischaracterizing my argument as a strawman, because that is to argue something completely untrue in order to malign some real person or proposition. I see nothing untrue about what I said, other than possibly attaching the adjective "liberal" to the predictions of politicians when they raise taxes, only to find that reality falls short because people DO change their behavior.

John said...

WP Do Millionaires Move to Avoid High Taxes?