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Comment by ryguytilidie | Hacker News Reader

You're kind of missing the point. I'm middle class and I'm well aware that compared to Germany or Scandanavian countries, I pay lower taxes. However, the issue is whether you "pay more" than the wealthy people in the US.

So no, I don't "pay more" than people living in a completely different country (how is this even a comparison) but I do pay more, on a percentage basis, than the highest earners in the actual country I live in, which is complete lunacy.

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No middle class person in the United States "pays more" than an upper class person, unless that person is actually evading taxes and destined for prison. It is simply mathematically impossible due to the AMT.

The ONLY caveat to this long-term capital gains, which makes a wealthy hedge fund manager who is tax efficient about his investment strategy pay approximately the same or a few percentage points less than an upper middle class childless couple that rents. (And there the reasoning is about double taxation and the macroeconomic effects that would have.)

Some on either side of the aisle may spin a yarn about the rich not paying their share, but as always I suggest ignoring the rhetoric, looking at the facts, and doing the math yourself.

I think the LTCG issue is more common in VC and PE. That's not even touching QSBS. I probably disagree with the preferential taxation given to these categories, but I'm definitely willing to change my mind.

Hedge fund managers will rarely pay LTCG on their investments. It's not uncommon for all of their investment gains to be counted as ordinary income. Note that I didn't say realized gains so they'll pay ordinary income tax on gains that haven't even been realized.

You're forgetting Social Security, which is a regressive tax system as it is not taxed on income over ~$118k. You're also forgetting things like Medicare. Both SS and Medicare carry an employer contributed tax, which is a hidden tax on the employee (employers just adjust wages to accommodate the extra taxation).

Finally, within the context of comparison to other nation's benefits structures, you're forgetting health care expenses which are included in most western tax systems.

Health care is also regressive in that it comprises a greater proportion of expense for lower income earners and carries a 'hidden cost' in the form of employer supplemental payments. It's perfectly valid to include these costs when comparing to other nations or to alternative tax & benefits proposals which include expanded health care.

By including or excluding varying costs and expenses, the cost to earnings curves bend dramatically....even with the AMT. The fact is, the answer to this question is not a single acronym. And the discussion can't even legitimately begin until some ground truth on what services and benefits are and/or should be included.

OK, let's look at the facts of carried interest, which is taxed as capital gains, and do the math on that. A hedge fund manager is paid for his labor by his investors - it is quite literally a transfer of money from investors to the manager for a job performed. Why should that labor be only taxaed at 15% when his w2 secretary is taxed at a much greater rate.

The discussion about "rich vs middle class" misses the point if, for example, you only look at the top 10%. The issue is really about the differences between earned and unearned income, and that is where you get this degree of what people believe is fundamentally unfair, like Warren Buffet paying a lower effective tax rate than anyone else that works in his office.

Mitt Romney pays 14% tax. I pay about double his percent rate, on magnitudes less money. The math is simple. Rich people in America don't have to pay their fair share. The system is rigged against the middle class.

Yeah, I'm getting the feeling that the guy who responded to my post thought I meant "more" as in "more dollars". I did not. I meant that I make 1/100th of people who pay 50% of the tax rate I do. I know that they pay more money total, but them having a LOWER tax rate is insane.

Rayiner's stats explicitly show that the wealthy pay more, on a percentage basis, than the non-wealthy. If the wealthy pay 45% of taxes while earning only 33.5% of income (ratio = 1.34), then simple arithmetic shows that the non-wealthy pay 55% of taxes while earning 66.5% of income (ratio = 0.82).

So no, you don't pay more on a percentage basis. You pay a lot less.

Rayiner's post has numbers that are made up. Here are actual numbers from University of California economist Emmanuel Saez:

https://eml.berkeley.edu/~saez/lecture_saez_chicago14.pdf

The top 10% have 50% of the income, and the top 1% have 22% of it.

Rayiners numbers come directly from income tax returns, which you'd know if you read his source. Where do Saez' numbers come from?

He's certainly doing something nonstandard. From his slides: Caveats: Income concept used is narrower than National Income and focus is solely on pre-tax, pre-transfer income

I'm guessing Rayiner's numbers include taxable wealth transfers while Saez excludes them, but I'm not really sure.

The article conveniently decides to draw the line at 10%, which is well below where income inequality really starts to hockey-stick. People in the 90th percentile have not seen their share of incomes grow in the last 30 years. Indeed, even the 99th percentile hasn't done all that amazing of a job increasing their income share. It is the top 10% of top 1% who have more than doubled their share in the last 30 years.

Actually drawing the line at 10% undermines their case - it's an extremely inconvenient place to draw the line. The US tax system is even more progressive for high earners.

Top 0.1% pay an effective tax rate of 35.7%. The 10th-5th percentile pay 20.3%. The bottom 10% pay 3.1%.

http://www.pgpf.org/budget-basics/how-much-do-americans-pay-...

Based on the graphs herein, the convenient place to draw the graph would have been at about 1%.

I don't know if you intentionally sabotage your own argument by posting links to those sites, or if you really aren't aware of the self-interest behind their reports.

I don't know what argument you are trying to make. You dislike the Brookings Institute (the original source of those #s), therefore the numbers I cited are wrong?

These numbers are picked over to distort the conclusion. They include in total tax burden the estate tax but not the sales tax. That's funny in a "haha I dropped my monocle in my brandy again" sort of way but not in a way that's useful for evaluating tax policy.

Unless you believe the poor are paying 32.6% of their income in sales taxes it won't change the conclusion. (Google suggests the highest sales tax is 9.45% in TN.)

You must be so happy to have discovered that the USA really is as progressive as you always wanted it to be.

Sales tax? I'm not from US but what sales taxes would individuals, particularly poor, be paying? Typically sales taxes are on businesses (where I live, we have value added tax, which is a further development of that, designed to distort the value chains less).

In the US, "sales tax" refers to an additional percentage charge added to the retail prices of goods and services. It's a terrible system, but individuals (poor or otherwise) might pay it for just about everything they buy: clothing, restaurant food, tools, repair services. It's collected by the retailer at the time of sale, who then reports it and passes the amount collected on to the state. Sometimes cities and counties have additional taxes, normally smaller than the state does. There is no federal sales tax.

Depending on locality, combined state and local sales taxes are typically in the 7-10% range, and unlike a VAT are only charged by a retailer who sells to the final user of the product. Business that resell products are exempt (after filling out the proper forms) until they sell to the final consumer. Also unlike a VAT, they are almost always in addition to the posted price --- if an item is marked as $5, you will be charged $5.54 (or some such). Despite the exemptions, sales taxes are generally end up being "regressive", in that the poor tend to pay a greater percentage of their income as sales tax than the rich.

Each state has it's own convoluted laws for what is taxed and what is not. Frequently, "essentials" are untaxed, while most other items are taxed at the same rate, but no two states agree on what is considered an essential. One state might never charge for food items, another might charge only for ready-to-eat food, and another only for food consumed on premises (unless it's cold, a breakfast beverage, or above a certain size). It's a mess, getting it right as a small retailer can be difficult, but the penalties for failing charge and collect the correct tax can be strict.

> Rayiners numbers come directly from income tax returns

Yes, which is a ridiculous argument in a discussion of people lying on their tax returns.

Indeed. The entire argument rests on what you define as income. If you work for a living that's indisputably income and you are going to pay a lot of taxes on it, especially if you are a moderately prosperous professional making something like $200k/year. On the other hand of you are Mitt Romney you don't have "income" you just have fungible assets that mysteriously increase in value and on which you are not taxed.

Coming from income tax returns is a problem, since the income on income tax forms is distorted by tax policy, and the tax on income tax forms is just the income tax, not total taxation (or even total federal taxation), so both the income and, even moreso, the tax shares derived from that source are inaccurate to make claims about the overall progressivity of taxation in the US compared to other countries.

> The top 10% have 50% of the income, and the top 1% have 22% of it.

So? That's about income inequality. That's not the discussion here. The relevant question is: do that 10% or 1% pay a lower, higher, or equal effective tax rate?

If we're discussing the ratio of income to taxes, the number on the numerator seems relevant.

The divide is between those who live off investments and those who work. So since capital gains are taxed at a lower rate than labor, there is some tax rate bias against labored work. Although it is progressive, the capital requirements for entry are high so it is unlikely for low earners be able to benefit from this.

from capital gains wiki: The tax rate on long-term gains was reduced in 1997 via the Taxpayer Relief Act of 1997 from 28% to 20% and again in 2003, via the Jobs and Growth Tax Relief Reconciliation Act of 2003, from 20% to 15% for individuals whose highest tax bracket is 15% or more, or from 10% to 5% for individuals in the lowest two income tax brackets

Those numbers come from an OECD report.

You are also ignoring WEALTH and capital growth that does not generate income.

For example, wealthy people can do 1031 property exchanges - which is non taxable way to sell and buy a replacement property.

A wealthy person can construct corporations that generate lots of tax "losses". For example, Amazon does not make very little in terms of taxable profit. If Jeff Bezos wants to buy a house, he can use his Amazon shares as collateral against a loan that Amazon makes to Jeff to buy the house. Completely legal so long as it is disclosed.

The wealthy make things that are after tax expenses to you and I - a before tax business deduction. Lunch? business deduction. Fancy car? Lease it for a business deduction - better yet have the company lease it. House? Host board meetings and company wine and cheese events in the house - leasing the house to the company at a very generous cost.

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