Came across an interesting point about the Top Tax Brackets I'd never heard before

[Armstead]

When we talk about progressive taxes, and the rates on the upper brackets, we tend to think of the direct effect, as in "yes those with a lot of money should pay more to reflect how much more money they've got."

But we also tend to separate that from the more fundamental and larger issue of the growing disparity of wealth, as the very top wage earners and investors have accumulated more and more while paying everyone else less and less. We tend to think of that as a seperate issue from what the top tax brackets are.

But I heard somewhere how they are tied together, in a way that I hadn't thought of before. I wish I could recall the exact source but I heard it in passing and forget where.

However, the basic point was that one thing the high tax rate on the upper,upper income brackets did was to remove the incentive to accumulate obscene amounts of money. After all, if the government took away much of it in taxes beyond a certain point, there was no need or purpose in making a lot more.

As a result things like executive pay were kept at at least a comprehensible level. An executive might settle for merely being wealthy, rather than going for obscenly grotesquely greedy. Perhaps settling for a measly income of $2 million annually, rather than try to goose it to $100 million....Likewise for investments. Rather than milk a company for all it is worth, investors would settle for a reasonable rate of return honestly earned.

The source (who I forget dammit) pointed out that the high tax rates on top wealth was one of the reasons the gap between the top and middle/bottom was less than it became. Once the wealthy were freed from those taxes since the 1980's, they had mofre incentive to suck the rest of the economy dry. Up until the 70's, the average ratio between the highest and lowest paying jobs was
somewhat reasonable. Since then it has skyrocketed.

Important note: This does not mean that taxes should be structured to take awat realistic incentives to rise, or squash all upward mobility. But a tax system that restored some restraints on the upper brackets could also restore some kind of healthiewr ratio between the wealth at the top and the middle and bottom.

[wellst0nev0ter]

1. That Sounds Like Something David Kay Johnston Would Say

That point was touched on in his book, "Free Lunch" a very prescient book I may add.

[ProSense]

2. Unless I'm missing the point, I don't agree with this

<...>

However, the basic point was that one thing the high tax rate on the upper,upper income brackets did was to remove the incentive to accumulate obscene amounts of money. After all, if the government took away much of it in taxes beyond a certain point, there was no need or purpose in making a lot more.

As a result things like executive pay were kept at at least a comprehensible level. An executive might settle for merely being wealthy, rather than going for obscenly grotesquely greedy. Perhaps settling for a measly income of $2 million annually, rather than try to goose it to $100 million....Likewise for investments. Rather than milk a company for all it is worth, investors would settle for a reasonable rate of return honestly earned.

<...>

The point seems to be that the tax code will keep them honest when all that a higher tax rate does is demand that they pay their fair share.

Tax rates are not going to prevent greed, and those driven by greed will find ways around them. That point was made about job creation and businesses. Intrinsically, greed becomes part of the equation.

On edit, interesting point though.

[Armstead]

7. Not keeping them honest --- Taking away an incentive to be excessively greedy

The point the person was making was that since people knew that really high incomes would be taxed at a really high rate, tghere was less of an incentive to earn extravagant amounts of money. So an executive would settle for a salary of maybe %500,000 rather than millions, as he would never see the excess.

Therefore, the ratio of the gap between the average workers and the top management was more like five-to-one trather than the 50-to-one we're seeing now.

The immoral gaps between the top and bottom began to grow with lower taxes on those upper, upper brackets, and investments. Now, instead of settling for being merely rich, the lack of taxes makes them more likely to aim for obscenely avaricious amounts of money far in excess of anything they could ever spend.

[louis-t]

3. Higher taxes on the wealthy forced them to reinvest

in their businesses. Otherwise they'd have to pay 70% or more in taxes. In other words, all of the things repugs say are accomplished by lowering taxes on the wealthy, were accomplished by HIGHER taxes on the wealthy. There is no longer any incentive for the wealthy to reinvest in this country. Why should they create jobs? Repugs are giving them all the money. How would creating jobs benefit the wealthy now? Richest 1 or 2 % control, what, 30% of the wealth? When are they going to create jobs? When they own 50%? 70%?

[mike_c]

4. +1

Yep, this is the lie at the heart of the "punishing success" meme. High tax rates on wealth forced the wealthy to reinvest their money rather than take it as personal riches, something that benefited EVERYONE, including the wealthy who were still, in the grand scheme of things, the richest folks on the block. What matters the most is not so much that some are wealthy while others are not, but rather the extreme disparity in wealth distribution.

[Raine1967]

8. + (2?)

I think this is a critical point.

The damn voodoo economics does NOT encourage people to reinvest in the country. This is what people never seem to get.

[JoePhilly]

5. Here is how I see it ....

1) When you are wealthy, you need, and want, less Salary. The reason is that Salary is taxed at a higher level than capitol gains. So, if you are very wealthy, what you want to do is SHIFT as much income as you can to tax advantaged vehicles. High end medical benefits, stock options, other perks like company cars, free travel, etc. You can even DEFER SALARY. Cheney did this.

2) Once you have MAXED the tax deferred or tax advantaged forms of income, THEN you go get as much MORE salary as you can.

3) The reason you, as a wealthy person, wants NO ESTATE TAX, is so that much of the tax advantaged money that you accumulated over the years, can get passed to your heirs basically tax free, until THEY actually spend it. But they don't spend it. They invest it. And they live on the capitol gains, which are again tax advantaged.

I've been a little too simplistic, but I think this captures some key considerations.

[hootinholler]

6. The only time wealth is taxed in the US is via the estate tax

Maybe the argument that property taxes are a tax on wealth, but the fed doesn't tax property AFAIK.

Income is not wealth, but could lead to it. Taxing very high incomes at a very high rate encourages those with that income to invest it in a way that makes it a cost of doing business, like paying a salary, etc.

-Hoot

[Gaedel]

9. Well

What do people do with "excess" wealth or with income over and above their needs? They don't put it under their mattress. They don't built a gigantic vault to put their money in like Scrooge McDuck (I like to dive through it like a porpoise. I like to burrow through it like a gopher. I like to toss it up and let it hit me on the head).

Somehow that money either goes into a bank, is invested in stock, or is spent on some lavish playthings. All of these activities do tend to have a positive effect on the economy.

I am of the opinion that taxes should exist for one purpose and one purpose only: to fund the necessary obligations of the government. The tax codes should be structured to provide for the most efficient and fair way to pay for government.

One of the reasons the tax code is such an abortion is that everyone is trying to jigger the tax code to support some social goal.

We could have a very simple progressive income tax with about four steps to it.

One of the ways to make it simple was actually suggested by Dick Armey: tax corporations and banks on dividends and interest paid and have the dividends and interest non-reportable by the payees. How many 1099s for $40 do the banks issue, the IRS track, and the taxpayers assemble and report?

[hootinholler]

10. Well

Somehow that money either goes into a bank, is invested in stock, or is spent on some lavish playthings. All of these activities do tend to have a positive effect on the economy.

Which economy? Certainly not my economy. Let me ask you what is different than what you said above and our current situation? It fairly describes our jobless recovery.

What happens when much of that 'excess' money is invested in a commodity like oil? What happens when it is 'invested' into political campaigns?

Nice try. Care to have another go at convincing me that supply side works?

-Hoot

[Armstead]

13. If people atre going to rip off everyone else,they should pay for it/

The siblings who own Wal Mart are worth somewhere in the realm of $100 billion (billion with a "b") apiece. Meanwhile, tyhey refuse to pay their employees much above the minimum level necessary.

Something is wrong with that picture.

Their own sense of shame should prevent that kind of thing. But since they don't, their ill gotten gains should be limited by tax policies.

[Gaedel]

14. Mickey Arison is on the list

He owns the Miami Heat. Since he pays LeBron James, Duane Wade, and Chris Bosh so much, his money should be taxed differently from the Waltons?

Sam Walton became rich by doing discount retail right.

The owners of Woolco, WT Grant, Caldor, JM Fields, Ames, Zayre, and a host of other comparable chains did the same thing wrong (the jury is still out on K-mart). They did not fail because they paid their workers too much. Their wages and working conditions were comparable to Walmart. The vaunted "mom and pop" stores that went out of business paid miserable wages and benefits were non-existent.

[dorkulon]

11. The reason CEO pay is so high...

...is that companies have so many small shareholders now that nobody is really paying attention, as long as they keep getting dividend checks.

It's the same reason Scott walker got elected--most people aren't paying attention and didn't vote.

[elleng]

12. Yes, and a reasonable 'upper.' Examine the brackets.