Someone said a while back that they are “self -made” and do not have to pay taxes to a government that does nothing for them, but instead gives money to those who choose to “free-load” and are a leech on society. They were referring to the possibility of the Bush tax cuts expiring (which is what they were supposed to do), but somehow was referred to by both parties as a tax hike on the rich.The tax rates did get changed and the cuts expired, but the belief by many rich business people stayed the same — the belief that they are “self-made.” They are who they are today with no help from anyone and therefore any money they have belongs to them and no one else.
Lets examine this belief a little more closely by using an example I will call Bob. Bob considers himself to be an American success story. He is a self-made millionaire who owns a few hardware stores, and some rental properties. Bob was born into a poor family. His mother gave birth to him in a county hospital, funded by county taxes. He had a mother and father and 2 siblings. His parents provided clothes, food and shelter for him and his siblings. There wasn’t enough money for extras but his parents made sure he and their other children had their basic needs met. What they couldn’t provide in the way of material possessions they made up with emotional support. Bob attended a public school that was paid for by taxes.
Bob got his first part time job in a local grocery store as a stock boy when he was 16. The person who hired him, took a chance on him and that opportunity helped Bob save some money for college. Bob got into a state college with the help of a scholarship (provided by the local small business association) , a pell grant and small loan (both provided by the government). He continued to work at the store and attend college. He worked hard and studied hard and when he graduated, he landed a job that paid him enough money to save up to own his own business someday. He wanted to own a hardware store.
After a few years Bob had enough money saved, along with a small business loan to open his hardware store. His store is located downtown, where the city provides free parking for shoppers to ensure that business owners will have enough customers to make their businesses viable. The streets, lighting, sidewalks, landscaping, signals, and stop signs are maintained by city and county workers — all paid for by taxes. A loan officer took a chance on him — trusting that he would repay the loan, as well as the landlord who rented him the space to run his business, and lets not forget the utility companies that came out to make sure he had the proper equipment to operate his daily needs. The city gave him a tax break to entice him to open his store downtown to fill in empty storefronts that would help bring more customers to the area. The local newspaper ran a story about his new business which was really free advertising that drew in customers to his store. The newspaper hoped they would in turn receive money from Bob so he could advertise his weekly sales and bring in more customers to his store. Wholesalers sell him merchandise transported by trucks that drive on roads built and maintained by city, county and federal employees — all funded by taxes. Lets not forget the gas stations that provide the fuel for the trucks that deliver the goods to Bob’s store, so Bob can re-sell the products to his customers, that pay him money so he can provide for his family; pay his employees who stock the shelves, sweep the floors and provide excellent customer service, helping him keep his business running smoothly…so smoothly and profitable that Bob eventually opened a few more hardware stores in the county.
Now Bob is financially well off. He can afford to send his kids to college. He and his wife live in a nice home on a hill in a gated community. He has a gardener and pool guy. A couple times a week he is able to sneak away from work to play a few rounds of golf at the country club. Yes, Bob worked hard to get where he is today but is he what we might call a “self-made” millionaire????
Inge, I did not bother to read through your article fully.
Because I know these “Bob” Types, everybody does.
They are American Tools, Collateral Wall Paper..
Empty headed, spoiled and ignorant materialists that are always begging society to give them a spanking, but society does not care, so they continue to float to the top of the their toilet bowl.
double eye, from you commentary it is pretty clear that you never had the success of Bob and have some “pennis envy” there. Perhaps you were the one it the toilet bowl who did not float to the top and got flushed to the great unknown. Sorry bout that but it is a jungle out there? Moral of this story is there are a lot of Bob’s out there and if you call working hard, saving money, paying taxes and success, as being an “American Tool,” you need to keep flipping those burgers at MacDonalds and shut the F–K up. Hope I haven’t been too subtle for you.
Ltpar,
I don’t know what ‘pennis envy’ is, but if you are referring to the Freudian term it’s spelled p-e-n-i-s envy and was directed toward women.
Did you read and understand my article?
I work with a lot of folks who think that they pay too much in income taxes. They definitely don’t think that they should pay zero taxes as they realize that public services have to be funded and they benefit from what gov’t provides. They may not always like how it is provided or how much is provided, but they understand the basic importance.
I actually think that the bigger concern is what is a “fair share”? They are told that they need to pay more so that they are paying their “fair share”. It irritates a lot of those who are already paying more than 50% of the next dollar that they make to the gov’t and yet they are not paying their “fair share”.
Your story leads off with the presumption that they think that they receive no benefits at all from anyone else and that they deserve to keep all of what they make…that is a fringe element IMO. That is not the normal high income earner…the typical high income earner from my experience understands the importance of infrastructure and paying income taxes. They don’t expect to pay zero in taxes as long as they continue to make income. There are other groups of Americans who do expect to pay zero, or close to it, in income tax though, but from my experience it is not the high income earner.
Boutwell,
These folks you work with have just enjoyed 10 years with the LOWEST TAX RATES in the last 80 years, I wonder, did they EVER STOP whining about taxes?
Our low tax rates are driving our deficits and it only seems fair that the folks who benefitted the most from those low tax rates and made all the money are the ones who now need to step-up to the plate and pay more taxes.
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/02/the-legacy-of-the-bush-tax-cuts-in-four-charts/
Bravo, anonster.
anonster, like all the other liberals you want to equate the country’s fiscal problems with people not paying enough taxes. This is the same bull shit philosophy that got us into this mess in the first place. The problem is not enough revenue coming in? The problem in it’s simplist form, so you can understand it, is government spending more than it makes. Add to that that 47% of the population no longer paying income tax at any rate and the probem compounds. In the end, I suppose you are part of the 47% or you wouldn’t be wanting to pay more taxes. What we need to do is put government on the Jenny Craig diet and slash wasteful spending across the board.
“There are other groups of Americans who do expect to pay zero, or close to it, in income tax though, but from my experience it is not the high income earner.”
Would that be 47% of Americans by chance?
I am not sure what % it is. I would not put those who are down trodden in that category (yes, I understand that down trodden is a term of art subject to interpretation). Here would be an example:
Married couple age 30 with 2 young kids. Wife works, husband takes care of the kids. Wife is self-employed. No house and they don’t itemize. Wife has gross revenue from consulting of $80K. Wife deducts every single thing under the sun in order to lower her business income to $30K- auto mileage, cell, meals, computer, home office, vacations, internet, subscriptions; you name it, she deducts it and puts a business connection on it. Even hires her kids at $3K each for modeling on her brochures. Some of them would be “legit” while others are very very questionable, if you know what I mean. Perhaps $30K of the expenses are “questionable” in nature. Of course, she deducts all of them to get her business income to $30K. What does this person pay in 2012 tax (not sales or ppty tax, but on her income tax returns)? Zero, zilch, none- actually gets a few bucks back. What would this person pay if they did not deduct her $30K of questionable expenses? Likely around $11K unless they itemized. This person will fight tooth and nail to get to zero. Even worse, is that they realize that if they just come up with $10K more in expenses, the gov’t will give them almost $3K back as a refund even though they did not pay a dime in.
Yep, i see it.
Wow, those moochers, the nerve of them to try and use the tax code to their advantage when they’re livin’ high-on-the-hog while raising their family on 80k in California. Shame, shame, shame.
No wonder folks like Mitt Romney were so outraged, these mooching “takers” could spoil everything. Why Mitt might not be able to deduct 70k for his horse if the poor, near poor and middle class don’t stop abusing the tax laws.
Seriously, you’ve got to be kidding.
You asked if it was the 47%, likely referring to the Romney comment. I simply gave an example of a family who pays zero income related tax, actually would get a bit back as a refundable credit, that a lot of people may think would be contributing income related tax dollars. Remember, this is in reference to the original article which was premised on a high income person feeling that they should pay zero tax…
I don’t think that most people think that someone who has consulting revenue of $80K should be ZERO in income related tax (not referring to sales tax). I guess that is where your “fair share” starts. The fair share for those who are under that level I love the misdirection…look over at that horse! I am all in favor of attacking improper horse deductions or any other improper deductions, including those of my hypothetical family…if we were able to close the “tax gap” and people (all people) would just honestly report, it would help all of us.
Seriously, you’ve got to be kidding…unfortunately, I don’t think you are.
BTW, this is not whining or bi***ing like you like to refer to it as…just plain facts.
Of course I don’t like tax cheats, but you’ve been trying to make the point(?) that average americans are equally to blame for taking advantage of the tax codes, I call bullshit (cover your ears) on that.
From the Economist’sView;
“The I.R.S. report concluded that proprietors of small businesses, investors and farmers cheated the most. Workers who had 99 percent of their wages reported to the government and taxes withheld from their paychecks were the least likely to cheat.”
Only about 12% of Americans own small businesses and here’s a little something on the state of small business, from the Atlantic;
“Which brings us to one of the sadder realities of U.S. entrepreneurship. According to GEM’s findings, a very high percentage of U.S. new business owners report starting their own companies not because they had a great, innovative idea or because they truly wanted to be their own boss, but out of necessity. There’s a disconcertingly large group of Americans who have gone to work for themselves only because nobody else will hire them.”
http://www.theatlantic.com/business/archive/2012/10/think-were-the-most-entrepreneurial-country-in-the-world-not-so-fast/263102/
There are many many small business who are not only following the tax code but are exploiting it…this is not a high income versus low income thing. It is a human thing…people of all income levels have a desire to pay the least, or in some instances get the most back. This is strengthened by the thought that everyone else is cheating, so people think that they can too.
I don’t think I ever said that the average American is equally to blame…I likely implied that those who have a small business take excessive advantage of the tax code and are rewarded for it…hence my example.
The average filer has W2 wages…which is very hard to “cheat” with. It is just math at that point…They generally cannot even get a net deduction for their expenses as an employee due to limitations. They can’t do a whole lot. It is frustrating for them for sure- probably more so that they know that others can cheat so easily.
The taking excess advantage comes into play more so with small businesses from my experience…often those who do not have a “real” controller. They do the books themselves or have a spouse do them. They run their personal life through their business checkbook. The IRS does not have resources to audit them all. The larger businesses (cover your ears), often have “real” controllers who set their owners straight and do not let them run personal expenses through. Or, their CPA/Auditors set them straight. Often the internal controls are set up so that they are not “cheating”…they may structure activities with well paid advisers in order to reduce tax burden, but these are often “by the book” instead of illegal.
“Often the internal controls are set up so that they are not “cheating”…they may structure activities with well paid advisers in order to reduce tax burden, but these are often “by the book” instead of illegal.”
So let me get this straight, if a larger business legally takes advantage of the tax code, that’s okay, but struggling families trying to use those same loopholes, they’re the problem?
Boutwell: “…these are often “by the book” instead of illegal.”
Anonster: “So let me get this straight, if a larger business legally takes advantage of the tax code, that’s okay, but struggling families trying to use those same loopholes, they’re the problem?”
So let ME get this straight- you don’t understand the difference between “by the book” and “illegal”. I guess it shows that all of our reading comprehension sucks at times. If it makes you feel good to twist words…go for it, but don’t try to put your twisted thoughts off as someone else’s. By the book means that it is NOT illegal. I am not sure why you have a hard time understanding that. Those “loopholes”, as you call them, are not OK just for the larger business but also for business owners who are struggling- they are available to all.
I will give you examples of both, first “by the book”:
1. Setting up an IC-DISC for goods that are shipped out of the country. Reduces taxpayer’s tax burden. Encourages US exports. Good for the US. Available for ALL…not just the big guys.
2. Tracking Research & Development Expenditures to claim the R&D Credit. Reduces tax burden. Encourages development of new technologies and ideas. Encourages hiring of qualified people. Good for the US. Available for ALL…not just the big guys.
3. Utilizing a Cost Segregation Study to properly classify real property (i.e. building) for depreciation purposes. More properly matches the expense with useful life of items in a building. Encourages ownership. Available for ALL…not just the big guys.
Next “illegal”…
1. Someone driving a company car and the company not including the personal use of the car as wages.
2. Someone deducting commuting mileage as business mileage.
3. Someone deducting a home office when it in fact is the kitchen table, the guest room, a den not used exclusively for business, etc…
4. Someone deducting meals that are not tied to business.
5. Someone hiring a person who is not actually performing services for the business.
6. Someone deducting vacations as business travel expenses when there really is no business purpose.
The larger business, and their internal controls, their Controller (often a CPA), their external auditor firm, their other investors, etc… often do not allow the “illegal” acts- they cut them off and don’t allow it to happen. There are some who may allow it to go on and they are putting their professional reputation and often licenses on the line. The 3 “by the book” items are relatively common and just have to follow the rules.
The larger point is that if EVERYONE were to follow the rules “by the book” then we would not have “illegal” acts occurring regardless of income level and we could all either pay less taxes, the gov’t could provide greater services to us, the gov’t could pay its obligations without going into further debt, etc…it is a winner winner chicken dinner situation.
I always try to correct my posts when my math is wrong…as i was shutting down my software, I realized an error. in my example, I presume that the 2 kids are young which should qualify them for the child tax credit.
I neglected to check a box in my software…the family would actually get over $2K back (i.e. zero taxes paid in and still get a check for $2K back), instead of about zero, if they had business expenses of $50K (i.e. my aggressive deduction scenario) and instead of $11K in tax owed in the more conservative scenario, the tax would be about $9K. Sorry about that….not that it really matters or changes the point though.
Are you kidding me? You are full of it if you don’t think most CPA’s ‘stretch’ the rules.
Most of your “illegal” deductions are used by CPA’s for businesses, all the time.
I know, because I’ve been “advised” to take some of your “illegal” deductions.
But your larger point about everyone paying their fair share; agreed, but those at the upper end of the tax codes abuse it the most.
I really appreciate the personal insult again…really adds to the conversation. I take it that you get my point and hopefully you can at least try not to twist language in inappropriate ways- there is no reason to do it.
The questionable tax professionals, I should use other more colorful language which you are better at using than I, that you have experience with I believe is not the norm- especially if they are CPA’s as opposed to other sorts of tax preparers. Unfortunately, there are tax professionals who flat out lie to their clients- they need to be taken out of business. I don’t think that is the norm though…unfortunately, I see it the most with the lower income demographics and so does IRS enforcement. They go after “tax mills” that churn out bogus returns. You need to hang around a different CPA if they are actually advising you to do any of the illegal items that I have listed…from my experience, the CPA is advising the client on the right thing to do and then the client decides what the answer is depending on where their morals are at. Additionally, you should turn that CPA “in” to the IRS…we need clean tax people out there. There are enough ways to benefit under our current system without having to cheat and lie just to save a bit in taxes.
It is amazing what some people (i.e. tax preparers) will do for a few hundred dollars- actually that is a good measure IMO. If someone is saying that they can get you money back without even looking at your info- run away. Go get TurboTax- it works for a lot of people who don’t have a very complicated tax life. By the way, most tax preparers are not CPA’s.
I have a high-end CPA and a lot of what you call “illegal” is legal.
Are you trying to claim that company gas credit cards are always restricted to business or for that matter company cars? That all “business trips” are business? That all business lunches are business?
You know damn well that all those things (and more) are exaggerated EVERYDAY by CPA’s. The difference being that those who can afford good CPA’S can get away with a lot more than those who don’t know all the loopholes.
Illegal is illegal. If someone is deducting commuting miles, that is illegal. If someone is deducting meals that are not connected to business, that is illegal. If someone is deducting travel expenses not connected to business, that is illegal. Your high end CPA likely is not advising you as such…if he/she is, they are not as high end as you think. Or, they really are high end, so high end that they have lost their morals and ethics. In more likliehood, if you are deducting those items, your CPA is not aware of them or you have lied to him/her about the activity.
Company gas cards- if they are used for non-business autos, then they need to be reconciled/reclassified as a dividend, distribution, compensation, or at least a non-deductible item. Pretty cut and dry. You can use it for non-business items, but you have to reclassify it to it proper accounting purpose. That is what larger businesses do with proper accounting internal controls and good controllers. Often, the smaller business does not even know the rules.
Business travel- for all travel, there needs to be a business purpose to it and it needs to be more than I was called on the gas station owner when you were filling up your rental car. Complicated area. A good CPA will be able to help business owners understand the rules and the documentation required. This is especially true with smaller businesses. Larger businesses have internal controls in place, that sometimes are circumvented, but are generally more effective than none…They are often reclassifying personal travel as compensation. I do it in my practice for example on flight logs for planes…people think that just because it is a business plane, that it is deducted- nope.
Business meals- Similiar to business travel, there needs to be a business connection and that business connection/purpose needs to be documented. I personally see a higher meals/entertainment on smaller businesses than I do on larger busineses…partyly because of budgeting and accountability to investors/banks/regulators, but also partly because of the internal accounting function. Again, it can be circumvented but from my experience, it is often much better than at smaller operations.
The job of the CPA is not only to report but educate. If your CPA is telling you that you can do any of the illegal items, then well, sleep well knowing that you are criticizing yourself with all of your posts as you are contributing to the tax gap. In all likelihood, your high end CPA is helping you follow the rules by telling you what is allowed and what is not. They are also helping you to document the deductions you are taking. When something is not deductible, they are helping you to rectify the situation. They may even do it without you knowing it because they don’t want you yelling at them and telling them that you should be able to because Romney deducts his horse.
Don’t do illegal stuff…even if someone with too much education tells you it is OK. Don’t do illegal stuff…even if you think everyone else is. Don’t do illegal stuff…even if it costs you more to do the right thing- after all, it is the right thing. My advice crosses all income levels by the way….good for everyone, and I don’t even have to charge you for it!
I don’t take the deductions that I’m allowed, it’s too much trouble vs. the deduction, but I KNOW THAT THEY WOULD BE LEGAL.
All your BS about business deductions being on the up and up is just that; bullshit.
I have witnessed the stretching of ‘business’ when it comes to deductions too many times to be fooled by the likes of you.
Almost ALL businesses in this country push the limits when it comes to deductions.
Yeah, you know it all anonster…you are the tax guru. You see it all the time, yup. Never said all business deductions are on the up and up…in fact, I have specifically said many are illegal, but go ahead and keep reading what you want to hear. Good for you and glad you don’t take all the deductions..right.
You’re the one the postulating that larger businesses never push the deduction envelope, that it is mostly small businesses that are the hot bed of tax evasion.
I don’t believe it, based on experience.
Yeah, I have not said that but go ahead and think it…I know it will help you continue with your beliefs.
If you go back and really re-read my posts, I am all for EVERYONE following the rules. I am also saying that everyone thinks that the high income earners are the only ones who are cheating whereas my experience indicates that the cheating is occurring at all income levels. Again, I want EVERYONE to follow the rules- not just those that are rich or those that are poor…everyone.
But again, you are the expert with the high end CPA and you know it all especially that “a lot of what you (me) call “illegal” is legal”. Fine…as long as we know where you are coming from.
“The larger business, and their internal controls, their Controller (often a CPA), their external auditor firm, their other investors, etc… often do not allow the “illegal” acts- they cut them off and don’t allow it to happen. ”
Your words. I believe that you are saying that because larger businesses have CPA’s that they are more likely to make sure every deduction is by the book.
It is my belief and in my experience that “larger” businesses take advantage of deductions just as much as small businesses, just a lot more skillfully.
Anonster: “You’re the one the postulating that larger businesses never push the deduction envelope, that it is mostly small businesses that are the hot bed of tax evasion.”
Boutwell: “The larger business, and their internal controls, their Controller (often a CPA), their external auditor firm, their other investors, etc… often do not allow the “illegal” acts- they cut them off and don’t allow it to happen. There are some who may allow it to go on and they are putting their professional reputation and often licenses on the line. The 3 “by the book” items are relatively common and just have to follow the rules.”
So you seem to think that I am saying that larger businesses “never push the envelope” by my above statement, which is referring to the 6 illegal acts referenced. Crazy! Larger businesses have controls set in place that small businesses don’t- they inherently have the resources. Maybe our definition of large and small is different…In my reference, larger businesses have many overlooking the finance function- their internal controller, their internal CFO, their board, their internal auditors, their outside CPA firm, their bankers, their bonding companies, their insurance firms, their auditors, and sometimes the SEC if applicable. Smaller businesses often have a very limited number of people overseeing finance- often only the owner or a “yes man”. The larger company has checks and balances between the one who wants to abuse the rules and the one who wants the company to maximize profits. For example, the CFO may want to use the company plane for personal use but the bank does not want that as they want/require high profits or may even prohibit the personal use. The smaller company has a checks and balances but it is usually just the owner versus the IRS- audit lottery; unless of course they have a CPA who is informed of the inner workings of the company and can a reasonable owner.
I am not sure that I can help you understand or if you want to understand…obviously I am not communicating in an effective manner with you.
One clarifying attempt: both large and small companies push the envelope; larger companies have a higher likelihood of having the controls in place to follow the rules; the rules are very complicated even for trained professionals to know; there are “high income” tax cheats; there are “low income” tax cheats; tax cheats are bad; some tax cheats don’t know they are cheating; to think that large business or high income earners are the only ones who are tax motivated is erroneous; everyone needs to comply with the laws; illegal acts are wrong even if your high end CPA says it is legal.
My point is that you seem very outraged by the fictional entrepreneur deducting “every single thing under the sun”, but because the larger business has a CPA advising them how to deduct “every single thing under the sun” that that is somehow superior.
Take the vacation deduction for instance, the entrepreneur may deliver some product and introduce herself to a couple of potential clients and then write off a four day holiday, that’s bad, but is the corporate retreat really any different? Just because they “follow the rules” and “work” the required hours they too can deduct a four day holiday.
Mitt Romney’s horse was a perfectly legal deduction, but I think that deduction was/is far more immoral than any of the deductions that the fictional entrepreneur took.
I have NO PROBLEM with anyone deducting what they are entitled to- regardless of the income level. I help taxpayer’s do this every single day. You imply that I don’t think that my entrepreneur should be allowed to deduct what they are allowed to- wrong, they not only are allowed but should. So should the higher income taxpayer. If the travel expenses are related to business- document and deduct it! No problem. If it is a personal vacation- suck it up and don’t deduct it. If it ran through your business- it is either a distribution, compensation, dividend, or loan; it is not a tax deduction.
I definitely do have a problem with people who are deducting non-deductible items- regardless of the income. I have a big problem when they are claiming the earned income tax credit and child tax credit and they not only don’t pay any tax, but instead get money back which creates a negative tax rate. I also have a problem with high income taxpayers evading taxes. It is called “income tax” for a reason- you have income, you should pay tax. I have a problem with people who think that every high income earner is a tax cheat even though they are following the rules. I also have a problem with people who think that everyone who is not fortunate enough to pay income tax is lazy and is that way due to to their own lack of ambition. If we can close the tax gap, we will all win!
But you DO have a problem with our entrepreneur’s deductions, you’ve called them questionable and you may very well be right.
Her deduction for lunch is illegal because little or no business was discussed yet the same may be true for those working at the larger company, the managers might all go out and talk sports for an hour, no business, yet they legally can deduct that lunch.
So just because they have a CPA and a lunch receipt that lunch is legal and more legitimate?
All I’m saying is that a CPA is no guarantee that the individuals working for a company are any more honest or entitled to that deduction than our entrepreneur and that most CPA’s know that there is a lot of fiction when it comes to these kinds of deductions and yet they take them too.
(At least I think that was my point, this has gone on so long I’m not really sure.)
I DO NOT have a problem with the the consultant in my example, or anyone, deducting legitimate business deductions. Do I really have to keep saying that? OK, maybe I do…
I do not have a problem with a lower income business owner deducting meals that qualify as a business deduction. I do have a problem with a large business deducting legitimate items. NOTHING I have said should be interpreted differently….nothing! The same rules apply to all.
I do have a problem with someone, regardless of income level or size of organization who feels that they can deduct their life…for example a family vacation, all meals, all trips to Costco (yes, that is another one I see a lot of and utility bills also). Just because someone has a CPA that they see a couple times per year does not protect them. It starts with the original transaction and the recording of that transaction. The CPA that someone visits and provides them the information is not going to audit their “stuff”.
Larger organizations often have the checks and balances to increase the likelihood of utilizing company resources for business purposes. Smaller organizations generally lack those checks and balances.
Sheesh…I hate when people take what I say and mold it in their own minds to fit there purposes.
Most of the folks I work with don’t whine about taxes. They don’t like being characterized as not paying their “fair share” when they are paying what they are now (i.e. 50%+ on the next dollar earned). They realize that the community needs taxes to run. They are not the fringe element.
A lot, not all, but most of my high income earners are new to their income- meaning lots of 20 year olds who are making high wages now. They were especially not whining back in high school about taxes. They are what often would be referred to as “new money”…back in the 2005, they likely did not have much of any wealth at all except for maybe working at a summer job or at a college food service job. They did not see their tax go down with the Bush tax cuts because they did not have the income to even pay tax, for the most part. They are not on their parents payroll either.
Sure there is an argument to say that the tax cuts helped them to do what they are doing now, which is true but there were certainly people doing the same thing back 20 or 30 years ago…it is not new industry.
The rhetoric that the highest income levels need to just pay their fair share is what gets them. They feel like enough will never be enough. Even now, a high wage earner in CA will pay 56.7% of the next dollar that they make and that is before the itemized deduction phase out which will tack another percent or two…51.4% assuming that they can benefit from the deduction for state taxes (i.e. AMT is not in play). They need to pay their fair share.
That will likely not be enough. Income taxes go up by 8.5% from 2012 to 2013 (48.2% to 56.7%) for this high income wage earner. The last thing they anticipate hearing is that they need to pay more more more….just pay a fair share. At this point, they are just wanting to keep a fair share as they pay more on the next dollar than they keep.
Those of us who have never had the 70% tax bracket to deal with may never understand I guess to your liking…just as we cannot understand what our grandparents and great-grandparents went through during the depression. We certainly can try to listen to others and learn from those experiences.
So, it sounds to me like you are most in favor of looking at those who really had the benefit of years of low taxes and raising their taxes. Retired couple who sold their business in 2010 but had years of high income/taxes and now has low income- tax them high at the highest rates. Person who is now unemployed after years of “making it” earning millions who now is scraping by on lower wage positions. Maybe even just recapture some of that wealth through an asset tax instead of an income tax since a lot of people who earned high income years ago now have very high assets but very possibly much lower income. Some sort of look back calculation sure would keep us accountants working long and hard- oh wait, we do that already. I guess we would need to hire more…I am OK with hiring more but not sure a lot of others would be.
The percentage of high earning 20 year olds must be minuscule and to try and base tax policy on those poor oppressed wealthy 20 somethings would be ludicrous. And IMO, any 20 something making over 450k should be jumping for joy, not bitching about their taxes.
Yeah, sometimes life and taxes are unfair, but raising taxes on high earners makes the most sense, after all, they can afford it.
I deal with the micro (i.e. my clients)…which I know is annoying to the macro (the population). Difficult to make policy on micro, but that is what I deal with day in and day out. Not everyone has received the direct benefit of the low taxes while others who did benefit now are not paying the higher taxes.
If you want to make policy at the macro level to equate the two which is what it sounded like you wanted (“These folks you work with have just enjoyed 10 years with the LOWEST TAX RATES in the last 80 years…”), you have to do some sort of look back calculation or wealth accumulation tax IMO. Those who benefited from those low rates essentially pay it back now through higher taxes.
Sorry, but those newly wealthy 20 somethings are going to have to suffer under the same oppressive tax rate (only after 450k, before that they are still taxed at historically low rates) that their elders struggled under during the Clinton years.
These young whippersnappers need to toughen up, if we could survive it, so can they.
Love it…I walked to school in the snow, so can you…
By the way, there are many who would love to pay the rates that they during the Clinton years…unfortunately, those who are fortunate enough to be making quite a bit of money will actually pay almost 5% higher rates now than then.
I’ll remind you of that when I cancel your Social Security checks because you (old people) ran up a debt that we (whippersnappers) can’t pay.
Oh wait . . . we’re gonna eat that one, too, aren’t we? DAMN YOU AARP!
Well, we’ve got to pay for those heady Bush years.
You might tell the young-ins that they really should be thankful that we’re not in a full blown depression. Compared to that, a little increase in the percentage of taxes paid by the very wealthy (and very fortunate) is a small price to pay.
This whole tax debate, while interesting, is a small part of a larger, more important trend.
Boutwell, do you think the income disparity trends highlighted in this report are a good, positive, sustainable trend for the country?
http://www.cbo.gov/publication/42729
This type of macro item is a little out of my wheel house so I admitedly am not very well versed on the , but I will answer as most politicians never would:
Good- probably not in comparison to a level trend.
Positive- probably not unless you are one of those who are benefiting.
Sustainable- yes, it likely has been this way for many generations and will continue into the future.
As the saying goes…the rich get richer while the laborer keeps laboring; or something like that. Fortunately, the income levels are going up for everyone which is a good thing. We are better off than our parents, but unfortunately we don’t measure ourselves by generations but instead compare ourselves to our neighbor.
So you see the ever-increasing incomes gaps as sustainable in the sense that it will likely continue.
Do you think that if it continues “into the future” that that is a good thing for the country?
When I said the above about it being sustainable, I was more referring to that I don’t believe that the system will implode upon itself if the trend of disparity continues along with everyone having more income.
Is it good for the country if it continues into the future? I would stick with my first answer about whether the past was good- probably not in comparison to a level trend. Fortunately, we do have incomes raising for everyone…not sure if my analogy made sense on doing better than our parents but not as good as our neighbor or not.
The big problem I see with the shifting of income, and presumably wealth, to a concentrated population is the power that they hold in politics. This is why I am in favor of getting money out of politics.
What are your thoughts?
That CBO report suggests that the income gaps are GROWING. It’s not a situation where income disparities are rising at a consistent pace…they are rising at an INCREASING pace.
You say that incomes are rising for everyone. But the truth is, they are rising at a far greater pace for the highest income earners. They aren’t rising at the same pace for everyone.
You understand that distinction, don’t you? And you don’t think the system will “implode” if that gap growth continues increasing?
The right frequently suggests that the left wants to redistribute wealth. Well, wealth is indeed being redistributed…upwards to a select few.
Anon…I understand all of what you indicated in the 1st three paragraphs quite clear. Although you do imply by using “but the truth is” that the prior statement was not true, not sure if on purpose or not. The CBO report appears to indicate that incomes are rising for everyone (Anonster called me out on below), which is where my statement came from.
I do also understand that the gap is widening. More income is shifting from the lower to the upper. It is somewhat like the power of compounding interest…which is one of the most powerful forces in the universe and hence is why I encourage everyone to start saving at a very young age. The more someone has, the more they will get due to compounding.
I personally don’t feel that our system will implode as long as we continue to earn more than we did previously in real terms (not talking one year dips, but trends). In my analogy…as long as we continue to be better off than our folks, then I feel we will not implode. If we have continued years of a large percentage of the population who are worse off than their folks, then that is when there is an implosion issue in my opinion. The problem is that psychologically we often do not compare ourselves to our parents but instead compare ourselves to our neighbors or co-workers. That can be an unhealthy comparison especially considering the amount of debt that our neighbors may be in.
You mentioned earlier the relationship of great wealth to greater political power.
With the wealthiest seeing their rate of income increase at a far greater pace than the rest of the country, we’re rapidly becoming a nation run by plutocrats. The statistics laid bare in the CBO report are the vary fuel for these changes. It’s disturbing that you can so blithely take a position akin to “oh well, we’re all making more money than our parents so that’s all that matters.”
By the way, do you think that an 18 percent rate of income increase over a 28 year period does a good job of keeping up with cost of living increases?
I do have a problem with the concentrated money in politics. It is very concerning to me. This is a result of the concentrated income and subsequently wealth. I have never said “oh well” or “that’s all that matters”…you may hear that but I don’t say it- that is your choice to hear versus understand. They are all related. I would be more concerned if we had a lower level of living compared to our parents. I am less concerned, yet still concerned (hopefully you see the difference), when we have increasing income for all. I am concerned with the power that wealth “buys” in politics.
I feel like you are asking all the questions and not really letting me know your thoughts as I originally asked, but I guess it is clear where you are at also from rebuttal or asking of leading questions.
What 18% increase are you referring to (not doubting the figure, just want to understand it)? I presume the 18% increase in real-after tax income for the lowest quintile…if so, I would absolutely love for that to be higher. I want EVERYONE to make more money. The 18% would be after inflation, which may or may not do the best job of keeping up with cost of living, but it is not an unadjusted figure. In response to your specific question…it comes down to more of a reflection of inflation vs cost of living. Inflation does not take into account a lot of items that increase for a person to live…for example, I don’t think it takes into account energy costs if I recall.
What do you think…is inflation compared to cost of living appropriate?
We DO have a lower level of living than our parents. Most families now need TWO incomes just to have a SHOT at getting by.
Maybe Boutwell isn’t concerned about income disparity because he just doesn’t know any “typical, ordinary americans”;
“While Americans with advanced degrees have experienced rising wages over the past forty years, American high-school dropouts and high-school graduates haven’t. Their wages have declined. And they’re Americans too.
They’re not just Americans; they’re the majority.
Roughly speaking, the bottom quarter of Americans drop out of high school while the top quarter finish college. The fifty percent in the middle are typical Americans.
The “ordinary” American doesn’t have a post-graduate degree. The ordinary American was lucky to graduate high school. And wages for ordinary Americans have been declining for almost forty years.
There’s no reason for anyone’s wages to be going down. Personal income per capita, adjusted for inflation, has doubled over the past forty years. If the income distribution today were as equal as it was in 1973, everyone’s wages could be twice as high.”
http://inequality.org/invisible-recession/
Anon- Going “off report” now and pure commentary on my end, opinion. I personally feel that we definitely are all working more than our parents. Many, if not most, families have increased the hours worked. Two income families are more common now than before. My family is certainly no exception as is most of my friends. However, I also feel that my parents would never think about doing some of the things that I see “out there”. They would never go out to eat as much, they would never drive the cars that I see many people driving, they would never buy the size of home that people buy now, they would never go into debt to purchase a car (heck, they would not buy a car until the other one fell apart), they would never go on a vacation that did not involve a friends/family members’ house or a tent, they would not think about having TV’s in kids’ rooms, they would not feel it appropriate for kids to wear desinger clothes, they have no problem garage sale-ing, etc…so, even though we may have somewhat level earnings, a lot of people today are making some choices that sabotage financial lives in an attempt to keep up with our neighbors (who often are in debt up to their eye-balls) instead of living simply and a notch better than our parents.
On the surface, many have a better life today than our parents…I stress, “on the surface” because we are working harder to do that. I personally feel that if we got back to the simple things, that everyone would be able to live a better life. We don’t “need” a majority of “things” in our life…myself included. I get sick when I look around our house at all of our “stuff” when our kids really just want to go play tag or catch.
Anonster- Maybe Anonster is not concerned with properly conveying Boutwell’s thoughts and instead he just wants to twist them into unrecognizable thoughts that do not bear resemblance to Boutwell. Maybe…well, probably.
I am concerned with income disparity…I believe I said that above. I would be MORE concerned with the income disparity problem if real after tax income were declining which according to the CBO report it does not seem to be. Like all things when stating priorities I have stated that it is probably not good or positive for the country to have the situation described in the CBO report. Please re-read…if you feel necessary to still twist words, well then you sir/madam are one that has an inherent problem that I unfortunately do not have the skills to help with. If you just enjoy having a punching bag on fiscal/economic topics because no one else has back and forth discussions with you, that is fine too, but have some honesty in your debate.
I hang around and know plenty of ordinary Americans. I don’t want to be ordinary though…I want to be extraordinary. if one is satisfied with ordinary, that is what you will get. Again, if you want to paint the picture of me in your mind as someone who is eating lavish meals and driving expensive cars instead of worrying about paying bills with the money earned each month, that is fine but it is not accurate.
I would LOVE to have everyone with an advanced degree/HS degree/trade school degree…that is likely not obtainable, but a worthy goal especially on the micro level.
“We don’t “need” a majority of “things” in our life…myself included. I get sick when I look around our house at all of our “stuff” when our kids really just want to go play tag or catch.”
That sounds fine and dandy, but if the overwhelming majority of Americans did that, what would be the impact on our economy?
The larger problem isn’t consumption…it’s that we’re not creating and manufacturing enough.
What would the impact on the economy be if we stopped buying so much “stuff”, simplify our lives, etc…? Well, unfortunately it would be a reduction to the overall economy. We would be spending less. Companies would produce less. Companies would hire few people. Companies would likely look to outsource even more than we do already and reduce costs (i.e. people) through technology.
What is best for my family, not spending, is unfortunately not good for the economy.
How do you drive creating and manufacturing without consumption?
Boutwell,
I am not a mind reader, I can only guess at your meaning from what you’ve written and it seems to me that you keep denying the fact that real wages for average americans have declined over the last 40 years.
This has nothing to do with how many television sets or cars people bought or how much debt they are carrying (different conversation) but their real earning power.
Rather than quibbling whether stagnation includes “a little increase” or if income increases generated by increased government spending are really the measure of prosperity, just be clear.
Have average american wages (men only, as women’s role in the workforce changed substantially) increased since the 1970’s or not? Yes or no?
http://economix.blogs.nytimes.com/2012/10/22/the-uncomfortable-truth-about-american-wages/
Anonster…see below- tired of scrolling up so far to hit reply.
” Fortunately, we do have incomes raising for everyone…”
Not true, wages for everyone but those at the very top have been stagnant for the last 30-40 years;
http://www.nytimes.com/2013/01/13/sunday-review/americas-productivity-climbs-but-wages-stagnate.html
http://money.cnn.com/2011/02/16/news/economy/middle_class/index.htm
Anonster…the CBO report indicates that every group has seen increases as follows:
CBO finds that, between 1979 and 2007, income grew by:
275 percent for the top 1 percent of households,
65 percent for the next 19 percent,
Just under 40 percent for the next 60 percent, and
18 percent for the bottom 20 percent.
BTW, the “income” the CBO is referring to is “Real After Tax Income”, so if someone makes $30K in year 1 and $30K in year 20 (in real, after inflation terms) but they take home $3K more because taxes decreased, they have seen a 10% increase in real after tax income although they are still making the same in wages.
In my mind, and yes I understand that you have trouble with the way my thinking works, it is all about what you get after tax, so that seems to be a good measure.
Your income growth is deceptive, that 40% translates to just a little over 1% a year and a lot of that was driven by social insurance programs.
From CBO;
■ After-tax income for the middle three quintiles grew by almost 40 percent over the 31 years, a little over 1 percent per year
Let’s look at WAGES not income;
“How has the economy delivered for the middle class?
Comprehensive income data, which includes benefits from employers and government transfers, shows no evidence that the private economy is performing well or fairly for most American families. Instead, it simply shows the great importance of preserving American social insurance programs.
86% Pensions, cash transfers and in-kind income (minus employer-sponsored health insurance) accounted for nearly 86 percent of all income growth for the middle fifth from 1979–2007. Furthermore, those categories directed at elderly households (Social Security, Medicare, and pensions) accounted for more than 56 percent of all the income growth during the period.
Wage and salary growth contributed relatively little to overall income growth during this period, and much of the increase is attributed to employees being better educated and working more hours (not earning more money per hour worked).”
http://stateofworkingamerica.org/fact-sheets/income/
Its not “my” income figure…it was the income figure was the figure used in the CBO report which is what we (Boutwell/Anon) were discussing. You came into the discussion asserting that I was wrong…which was not the case. If you want to talk wages, instead of the income from CBO, that is fine, but it is changing the landscape, which I am fine with, but not under the guise that my statement was “not true”.
The items that you quote below after “let’s look at wages not income” I don’t see as supporting your assertion that there has been no growth (i.e. stagnant) for everyone except those at the very top…yes, it says it contributed very little, but still contributed.
At the end of the day, folks spend/save what they get from all sources after tax…I feel that is the most important measure, but obviously a very large component of that is wages. Fortunately, wages are not decreasing in real terms and after tax real income is increasing. The gap is widening, which I would love to see it compress through the bottom making more…I would rather raise the floor than lower the ceiling.
I realize that the figures you cited came from the CBO and I also acknowledge that you are technically right, incomes have risen across the board, but is it really what you meant by;
“Fortunately, we do have incomes raising for everyone…” ?
Which seems to suggest that everything is swell, no worries about income disparity. When in reality most americans are treading water or even sinking, we are not doing better than are parents.
From New Strategist Publications;
…”The question is, are 45-to-54-year-olds doing better than their parents were at the same age? We can find out by comparing the socioeconomic status of 45-to-54-year-olds in 2009 with the status of their 45-to-54-year-old counterparts in 1989 (in many cases, their parents).
The first comparison is easy to find in Table H-10 of the Current Population Survey’s historical household income statistics. The Census Bureau has gathered all the numbers, adjusted them for inflation, and published the results in an easily accessible table. The finding: Compared to their parents, today’s 45-to-54-year-olds are falling behind. In 2009, households headed by people aged 45 to 54 had a median income of $64,235. This is 7 percent less than the $69,352 median income of householders aged 45 to 54 in 1989, after adjusting for inflation. The decline in household income occurred despite the increase in working women and the rise in educational attainment.
Now comes the harder part–comparing the incomes of today’s men aged 45 to 54 who work full-time with the incomes of their counterparts in 1989. You won’t find a table displaying these numbers on the Census Bureau’s web site. You have to do the work yourself by diving into the archives of the Current Population Survey and examining, page by page, the scanned hardcovers of the old (and beloved) income reports. There, in Table 25 of Money Income of Households, Families, and Persons in the United States: 1988 and 1989, you can see the incomes 20 years ago of men aged 45 to 54 who worked full-time. Back then, those men earned $61,230 (in 2009 dollars, an adjustment you must calculate yourself). Today, their 45-to-54-year-old counterparts earn 11 percent less, only $54,333. The growing incomes of women who work full-time has made up for some of the loss in men’s income at the household level, but has not entirely closed the gap.” …
http://www.newstrategist.com/store/index.cfm/feature/49_15/are-you-better-off-than-your-parents.cfm
You may want to quibble about the definition of stagnant but most people know that their incomes aren’t increasing and more than likely they’re losing ground.
The reality is that most Americans are working longer, harder and falling further behind.
If you really wanted to know what I meant by incomes rising, you would have asked instead of saying that I was wrong.
it is not about rising incomes, it is about disposable income. do i spend it, invigorate the economy, create jobs blah blah blah,,,or do i bury it is a tax haven like aruba or montana, draw my interest, cut back on staff, blah blah blah
if i feel positive about the government and the economy, i do the first, if the state is going to tax everything i do or buy, then i do the second….it is really that simply
That was tough to read Willie, but I presume you are thumbing your response on the latest high tech device instead of having your but in a chair in front of a computer like me (where I should really be doing taxes instead of debating them).
I agree with you that, we are very much driven by feelings and disposable incomes. Unfortunately, there is a large portion of the population who would love to save (just in the bank or a cookie jar0) but unfortunately they not doing so for a variety of reasons.
Anonsterr: “Have average american wages (men only, as women’s role in the workforce changed substantially) increased since the 1970′s or not? Yes or no?”
Boutwell: Yeah, you are not going to like this answer. I wish it were that simple as a yes or no. You have cited a few article about this very thing. What is average? Is it the same person working the same job? Is it the true mathematical average of the entire wage earner? Is it a specific year (i.e. 1989 versus 2009 as one of your links had)? I also am not a mind-reader of what you mean (intention not math- sorry, accounting humor). Does a little increase mean any increase or do you have a floor before it starts actually counting? Should we use an inflation adjustment or a cost of living adjustment? Are you including inflation at all? These questions are why there are so many different sources and they all say a different thing and also why it is difficult to answer plainly yes or no.
In the end and broadly interpreting your question…I feel that wages are plus or minus a negligible percentage for the middle 40% of Americans- likely in the statical error rate. Essentially about the same.
In other words … stagnant.
I think that is materially fair to say…now, I will save you the time trying to find where you likely interpreting me saying that I disagree with you about saying that wages were stagnant:
Boutwell: “The items that you quote below after “let’s look at wages not income” I don’t see as supporting your assertion that there has been no growth (i.e. stagnant) for everyone except those at the very top…yes, it says it contributed very little, but still contributed.”
I still stand by the statement that the info you included in your post at 8:39AM doesn’t seem to support no growth (maybe your link does, sorry, I have to still pay some bills by earning…). I personally “feel” that some have made more, while some have made less, in real terms, over that period of time. I doubt you will see the distinction between me saying that your verbiage provided does not support no growth and me saying that I feel that for the most part people are making about the same as before.
I hereby nominate Boutwell for “Most-Patient Commenter of the Year”.
This thread is ludicrous. Well done on not losing your cool.
Ryan, I can only see half of your post because of the duct tape holding my computer together from me throwing the screen on the floor…twice, but thanks….I think.
Anon and Anonster…I feel like I have answered your questions rather openly and honestly. I have one for you that I would like to know your thoughts on…
Do you feel that we are better off today compared to our parents? I am fine with commentary and not just yes/no because my follow up would be “why?”. I personally do, but will wait to spout off on why until I hear your thoughts.
Boutwell, you’re sposta be a blogger here. And there’s too many comments on this thread already. Why don’t you write a story instead, about how we’re better off today compared to our parents?
The problem is, I start the day, saying, not going to get tied up in this “stuff”…and well…hmmm. Anon/Anonster…hold off on composing your response if you will for my story- that will get me to actually write the story.
Whoops, sorry, I was composing my reply and missed this entry.
we probably are better off than our children, but are our children going to be better off than us
oh leave him alone Vern…I am enjoying their discussion and actaully find it informative.
I am glad that you find it informative- that is the most that one can hope for regardless of agreement versus disagreement. I for one probably found it more frustrating than informative but I can live with it…I did learn some things for sure- including how to read articles quickly.
Well, in terms of goods, most definitely. Since, I am older than you, my parents are from the “greatest generation” and due to technology and “free” trade our things are better, safer, more abundant and in many cases, cheaper (especially clothes) than my parents generation.
On the other hand, I think that life is a lot more complicated now. People have a lot more stress, even from small things, things our parents took for granted. Like school busses, Driver’s Ed. in school, school sports and extra curricular activities being free.
People’s jobs were usually more secure (not so many fast moving technological advances) and more people had pensions (no 401k investment decisions) and families could usually survive on one income (no agonizing child care decisions). And let’s not forget the cost of college, in my parent’s day (in Ca.) our universities were virtually free.
In business and home, everyone has to make sure that they’re insured up the whazoo ( huge expense) and that they’re very careful what they do and say lest they get sued. The number of accidents and wrecked cars that me and my siblings caused would have bankrupted my father today, instead of being the minor knocks of life that they were.
I must say that among all my “boomer” friends most of our parents retired waaaay earlier than we will, hell we’ve already passed them and for most of my friends they’re hoping to hang on till their at least 70. Bad planning? Maybe. Excessive spending? Probably, some of that too, but I think a lot of it can be chalked up to stagnant wages not keeping up with huge housing and education costs and being nickeled and dimed to death on every level.
There’s also a lot of strain on families with adult children not being able to get work or work that pays enough for them to live independently (sometimes because of student debt). Many families also find themselves taking care of their parents as well, due to the high cost of assisted living or their inability to afford living on their own.
My own personal situation is very good, but not as good as my parents, my dad was a risk-taker and did quite well. I don’t think he’d be able to do it today (while raising a family) and neither does he.
*A Nation of roads….a chicken in every pot and a good 5 cent cigar! Tippicanoe and Tyler too!