Hacker News Reader

Comment by afterburner | Hacker News Reader

The rich currently pay effective income taxes at a lower rate than the middle class, thanks to their close association with corporations and much of their gains being stock related. Taxes on the rich are just recovering from all-time lows in the Bush years. So stop acting as if the rich are being bled dry or pushed to a limit. They avoid taxes using offshore strategies because they can, not because they're in dire straights. And they are succeeding in paying lower rates than anyone else. Meanwhile, one of the major parties of the country wants to cut estate and upper end income taxes even more, and raise them on the middle and poor.

The fight isn't happening at the rich's doorsteps, it's happening at the doorsteps of the middle and poor, pushed there by the rich.

View on HN

Tax avoidance is mostly happening because tax rates are seen as too high by the rich. Paying 40% tax on $50,000 is different to paying 40% tax on $10m. Past a certain point, setting up an avoidance mechanic (if one exists for the investment you want to make) will be cheaper than actually paying the default tax rate. Avoidance can never be stopped, because it's mostly structuring transactions in legally allowed but clever ways and you can't stop that (or you would block normal, legal transactions as well).

Say I have $10m I want to invest in an international company. If I do it in the most obvious way, by capitalising an entity, I might get a 30% return on my money after 3 years after paying all taxes. Alternatively, I can structure it in a different way, and make 50% in 3 years, because I end up paying less tax. The difference is an extra $2m on $10m. If the amount to set up a structure/attorney fees/possibly litigation fees < "normal" tax to pay -> avoid.

The only real solution is to lower rates across the board by getting rid of most deductions. If you remove the incentive to avoid, it'll be less worthwhile to avoid, and most people will stop doing it. How much people would put in an effort to avoid taxes, if the actual tax rate was, say 10%?

> Paying 40% tax on $50,000 is different to paying 40% tax on $10m.

You're right. It's way different to charge 40% on $50k, because the person making 50k probably can't make ends meet if you charge them 40% tax. The person making $10MM has no such trouble.

I'm not saying it's right, I'm just saying how it is and that it's a problem that is very hard to fix. For wealthy people, tax is just another expense to push as close to zero as possible.

I completely agree that it's a hard problem. I don't think there's a fix that involves lowering the tax burden on the wealthy, though. You can dump more taxes on the middle class and effectively reduce the level of avoidance but I don't think that's a net gain for society. I think it would actually be a huge loss.

So sad you're downvoted. The solution is ruthless enforcement of the tax code, with extreme punitive fines for evasion.

> The solution is ruthless enforcement of the tax code, with extreme punitive fines for evasion.

Evasion has always been illegal, avoidance is structuring a transaction in a way so that it ends up being taxed at a lower rate, but in a legal way. Ruthless enforcement is already happening today in most western european countries.

> Ruthless enforcement is already happening today in most western european countries.

Oh please. It took 6 years for the EU to penalize Ireland for the double irish/dutch sandwich avoidance mechanism.

https://en.wikipedia.org/wiki/Double_Irish_arrangement

https://www.bloomberg.com/news/articles/2016-08-30/apple-ire...

Well.. countries are allowed to set their own tax laws. That’s part of what makes a country. Fiscal sovereignty right there. Ireland (obviously) purposely created their tax framework so it would allow for this kind of behaviour. The world is battling for the tax dollars of wealthy people and their corporations. The EU ruling is just an initial opinion of the EU commission. It’ll have to go through the ECJ first.

Countries are starving for tax income and have very clear conflicts of interests: they want to 1) tax their normal residents as much as possible, but at the same time 2) hand out low tax “freebies” to non residents (or HNWIs) so they will book some of their taxable profits in their jurisdictions. This needs to stop (globally) before you can effectively combat avoidance. But I doubt it’s ever going to happen.

> Oh please. It took 6 years for the EU to penalize Ireland for the double irish/dutch sandwich avoidance mechanism.

That's because it's not a clear-cut legal issue. It's pretty much the EU versus everyone else on this one. Even the US government is unhappy about the EU ruling, even though the US government has gone after Apple for its tax practices fairly recently.

That's been the solution since at least Roman times. It doesn't actually work. People with a lot of money are a lot more mobile than the rest of us.

And for you it is not? You donate your income to the government?

I don't, but many normal people know close to nothing about taxes and end up overpaying / not optimising sufficiently.

You have no idea what that person's situation is from their income. I know retired people with a lot of money who pay hardly any income taxes because they don't have much income. I also know people who could make a million this year and not be out of debt.

If you're earning 10MM/year and unable to make ends meet, you're terrible with money and it's your fault. Maybe you can construct a far-fetched scenario in which this could reasonably be the case, but in the real world virtually anyone making 10MM/year is extremely wealthy or extremely incompetent.

If you're making 30k/year, you are just barely making enough to support a family on your income. Yes it's possible to be wealthy and low income, but it's uncommon and generally indicative of retirement or something similar.

>If you're earning 10MM/year and unable to make ends meet, you're terrible with money and it's your fault.

Maybe, but not necessarily. What if I spent twenty years putting myself in the position to make $10m in one year?

>If you're making 30k/year, you are just barely making enough to support a family on your income. Yes it's possible to be wealthy and low income, but it's uncommon and generally indicative of retirement or something similar.

Well, yeah, but so what? My point was you're making a lot of assumptions based on income alone.

If you spend 20 years setting yourself to make $10MM one year and you still can't make ends meet then you are clearly incompetent.

I don't understand what your point is with this whole argument. Yes, there are always exceptions. They aren't very interesting but the very nature of being exceptions, especially since tax laws are written for the general case.

The number of multi millionaires in your exceptional case is also much smaller than you probably think. It's vanishingly difficult to earn no money when you have millions in assets.

>If you spend 20 years setting yourself to make $10MM one year and you still can't make ends meet then you are clearly incompetent.

I don't see how you could make a statement like that. It costs money to live, and it costs money to keep a business venture going. After 20 years you may own $20m. It doesn't necessarily mean you're incompetent. It may just mean things didn't go the way you planned.

>I don't understand what your point is with this whole argument. Yes, there are always exceptions. They aren't very interesting but the very nature of being exceptions, especially since tax laws are written for the general case.

My point is you don't know enough about someone's situation to make a blanket "they can afford it" or "they can't afford it" statement, and that statement underpins the entire argument for forcing people with higher incomes to pay more taxes.

>The number of multi millionaires in your exceptional case is also much smaller than you probably think.

Or it's much larger than you probably think. Nobody knows. Why are you assuming you know?

> It's vanishingly difficult to earn no money when you have millions in assets.

Actually, with current interest rates it's pretty easy. I know people with millions in assets who put their money in safe investments, because there's no reason to take risks when you have millions and you're in your 70s. Right now the interest on safe investments is a rounding error.

> I don't see how you could make a statement like that. It costs money to live, and it costs money to keep a business venture going. After 20 years you may own $20m. It doesn't necessarily mean you're incompetent. It may just mean things didn't go the way you planned.

If you have $10 million in income and cannot make ends meet, something is wrong with you. I understand that you could also have debt. That doesn't mean you aren't "making ends meet". I have more debt than income. I'm making ends meet just fine.

> My point is you don't know enough about someone's situation to make a blanket "they can afford it" or "they can't afford it" statement, and that statement underpins the entire argument for forcing people with higher incomes to pay more taxes.

Income is extremely correlated with how much of anything one can afford, including taxes.

What is your alternative anyway? We'll just stop taxing people entirely because we can't really know what they can afford? Or are you just being pointlessly argumentative?

> Or it's much larger than you probably think. Nobody knows. Why are you assuming you know?

Because I did the math, as could you.

> Actually, with current interest rates it's pretty easy. I know people with millions in assets who put their money in safe investments, because there's no reason to take risks when you have millions and you're in your 70s. Right now the interest on safe investments is a rounding error.

Drop your millions into T Bills for 5 years and you'll earn 1.3% on the safest investment you'll get. 1.3 is a rounding error? Ok. On a million dollars it's also 13k. So if you park 5 million in this absurdly low interest investment you'll still make 65k/year.

So no, it's not easy to make no money if you have millions in assets. A few million in safe investments yields more income yearly than the average American family makes.

>If you have $10 million in income and cannot make ends meet, something is wrong with you. I understand that you could also have debt. That doesn't mean you aren't "making ends meet". I have more debt than income. I'm making ends meet just fine.

Again, it all depends on the details. Could you make ends meet with $10m when your $20m debt comes due in the same year?

>What is your alternative anyway? We'll just stop taxing people entirely because we can't really know what they can afford?

The alternative is, one, we keep the top rate reasonable. Nobody should have to pay 70% or 90% or whatever on his income, no matter how large. And everybody should pay income taxes, even if it's just a token amount.

And two, we should get more of the national income from consumption taxes. If you can run out and buy a bunch of stuff you can then I know you can afford it. I'd have a national system like California's, where things like food and clothing are exempt.

>Or are you just being pointlessly argumentative?

Don't be an ass. Seriously.

>Because I did the math, as could you.

When I "no money" I don't actually mean zero money, though I'm sure there are people who keep large amounts of money in their checking accounts. I mean no money compared to assets. What is a few tens of thousands for someone who has millions in the bank?

>Drop your millions into T Bills for 5 years and you'll earn 1.3% on the safest investment you'll get. 1.3 is a rounding error? Ok. On a million dollars it's also 13k. So if you park 5 million in this absurdly low interest investment you'll still make 65k/year.

You realize for someone who has five million dollars in the bank, particularly someone who's only going to be using it for a handful of years, $65k is a rounding error? And that the average tax rate for someone in that bracket is around 13%, so that guy with five million in the bank is going to pay somewhere in the neighborhood of $8500 in taxes.

> Again, it all depends on the details. Could you make ends meet with $10m when your $20m debt comes due in the same year?

Can you describe a realistic situation in which you receive a personal loan for $20 million that comes due at once that you cannot pay for by liquidating other assets? This isn't a real scenario. No one will give you this kind of personal loan without collateral or proof of significant unencumbered assets. And at minimum, you'd be doing this through a corporation, or again, you are incompetent.

> The alternative is, one, we keep the top rate reasonable. Nobody should have to pay 70% or 90% or whatever on his income, no matter how large. And everybody should pay income taxes, even if it's just a token amount.

No one in this comment thread said anything about raising taxes to 70 or 90 percent for anyone. You're taking against a nonexistent point.

Nor is this "alternative" an alternative. In no way does this address the fact that a specific income does not guarantee an ability to pay a specific tax rate.

> And two, we should get more of the national income from consumption taxes. If you can run out and buy a bunch of stuff you can then I know you can afford it. I'd have a national system like California's, where things like food and clothing are exempt.

Consumption taxes are effectively regressive. Exempting clothing and food is a decent idea but it's still regressive and I'm not sure foie gras and mink coats should be tax free.

> Don't be an ass. Seriously.

You're arguing against points I never made and you never even stated. You're making appeals to consider imaginary millionaires who can't pay basic taxes. It honestly feels like you're being intentionally argumentative.

> When I "no money" I don't actually mean zero money, though I'm sure there are people who keep large amounts of money in their checking accounts. I mean no money compared to assets. What is a few tens of thousands for someone who has millions in the bank?

The money you have in the bank isn't relevant to your taxes except to the extent that it produces income for you. If you are insanely wealthy and have almost no income, you'll have no trouble paying your taxes.

Are you imagining that I at some point proposed a tax on wealth?

> Can you describe a realistic situation in which you receive a personal loan for $20 million that comes due at once that you cannot pay for by liquidating other assets? This isn't a real scenario. No one will give you this kind of personal loan without collateral or proof of significant unencumbered assets. And at minimum, you'd be doing this through a corporation, or again, you are incompetent.

The most obvious situation is probably where you've invested a certain amount of money in a highly illiquid asset, that can someday (i.e. 10-20 years from now) be liquidated for a significant capital gain. This could, for example, be a business or a plot of valuable land.

How does that work? The bank gives you a noncollateralized loan so that you can buy a $20 million property and then they suddenly call the loan? They gave you the loan without proof of ability o pay? I have trouble believing that this is very plausible. It's so risky to both parties that I can't see why the bank would issue the loan.

I can't deny that it's technically possible. I just think it's extremely far-fetched.

Not really. Even if a loan is collateralized by an asset, that doesn’t mean it is easy to liquidate said asset at full value.

For example, let’s say I buy a Monet painting for X million and a bank is willing to give me a collateralised loan of up to 75% of the asset value. If a bank decides to sell that asset tomorrow (i.e. at a suboptimal time) they might not even get 75% of the value back.

Debt is a lever in business and some people make it big by leveraging big.

Sure. But the bank isn't going to give random Joe a loan to buy a Monet. That's why all this is far-fetched. There are scenarios that could result in 20MM loans being suddenly called. People with little assets generally don't get those loans though.

It's doubly far-fetched to talk about loans to individuals for $20MM. If you're applying for a $20MM loan, you should have an accountant and your accountant should have told you to put this kind of thing in a corporation. You'll still lose a lot but it shouldn't bankrupt you personally.

Well, it depends on how wealthy you are and the jurisdiction you live in. Loans are not taxable income and if you would have to pay some sort of withholding tax on a dividend (if you would want to borrow against your illiquid shares for example), then it might make sense to take out a personal loan. A bank might also be more keen to give you a loan personally.

But yes, obviously not that common. Random Joe won't be getting these. Random Joe doesn't have $20m in assets either, though.

(Why is 1000 a k for kilo, but a million is MM, not M for mega?)

M=Mille. It's used in financial jargon. A mille is also 1000.

I never use a single 'M' by itself when talking about money because it's ambiguous. Mega or mille? If you see MM, it's not ambiguous.

> If you remove the incentive to avoid, it'll be less worthwhile to avoid

Taxes are needed to pay for hospitals, teachers, firefighters... what happens if the amount that the 1% think is fine doesn't cover for that expenses? They have so much money that they can afford private version of that services. But what is in that model for the rest of citizens?

This is a problem between short term benefit for a few against long term losses for everyone. It is not possible to have a modern society with low rates of death by sickness and low levels of violence and crime if we can't afford to have in place none less improve all the current safeguards.

I don't know the answer to that.. maybe we need to be more efficient with the resources we use/allocate, or maybe we need to try and figure out how to make due with the tax income we have? Governments all over the world are constantly overspending. That's the nature of the beast. Give them X and they will spend X + 10. I wouldn't actually be surprised that we can make due with current (or even) lower overall tax income if we decide to allocate it properly.

Wealthy people can move relatively easily if they want to. If someone is worth $50m, he's really getting very little value from the system. Heavy shoulders should bear a heavier burden, I agree, but how far should that go? Maybe the maximum amount of tax should somehow be capped. Past a certain point, some people just get fed up with paying insane amounts of taxes. Proportionally (income wise) middle and lower income people are paying more in taxes then, but they are also getting more back in comparison to the guy who is worth $25-50m.

The rich benefit from a society where he can conduct profitable business. I think he benefits more than he cares to admit, because a more heavily taxed middle class is going to spend less, and that is going to affect his bottom line, one way or another.

You say they "get fed up with paying insane amount of taxes". All they have to do to stop paying so much in taxes is to stop accruing an insane amount or wealth.

The truth is more likely that their wealth has made them selfish and insensitive. As Leona Helmsley famously said "Only the little people pay taxes".

It might be interesting to know what percentage of thier offspring the wealthy are sending to fight and die in wars compared to everyone else.

What is missing from this view is that wealth is good. If you run a company (that isn't a monopoly) you will quickly realize the obvious:

The only way to create wealth is to give most of it (>50%, at least) away. You have to provide more value than the price of what you're providing.

It is a very good thing, for society, for you and me, that that wealth is created. If the rich ever "stop accruing an insane amount of wealth", that would be very bad. We don't want that. We want that wealth to be created.

And then there's the obvious fix: just have the government do it all. The problem with that is that it takes away the wealth creation motive and replaces it with raw power. The point of business, at that point, becomes advancing it's management position in the government, not to serve anyone. I very much prefer a lot of highly capable people working to provide more goods for me cheaper & better to a lot of highly capable people working to provide a tighter and more controlling government. So should you.

> If someone is worth $50m, he's really getting very little value from the system.

He's getting everything from the system. Law, the courts, the ability to live in relative freedom without walled compounds and guards, etc.

When revolution comes, those $20-50M guys will be the ones on the wall.

Look at a red state like South Carolina as an example.

Basic services like fire protection are membership based, folks who live in unincorporated territory have to BYO water, sewer, security, and poor folk are really poor.

The rich currently pay effective income taxes at a lower rate than the middle class

That's not true at all.[1]

For those making $50K-$100K, 87% have less than a 15% effective tax rate. For those making $200K or more, Only 14% pay less than a 15% tax rate with 84% paying more than 15%.

Here is another set of data.[2] Effective tax rates are strongly associated with higher incomes.

[1]http://www.taxpolicycenter.org/statistics/effective-tax-rate...

[2]http://taxfoundation.org/blog/chart-day-effective-tax-rates-...

I don't believe this is true. I'd be happy to change my mind with some evidence. See [1].

[1] http://www.pgpf.org/chart-archive/0008_tax-system

> So stop acting as if the rich are being bled dry or pushed to a limit.

I never said they were being bled dry. I said they already pay most of the taxes, and it seems unjustifiable to ask them for even more, while at the same time demonizing them for not paying their "fair share" -- as if paying more than half of the taxes isn't already a major contribution. Their ability to pay is not relevant to my argument.

I would have to disagree almost entirely - their ability to pay is why they are being asked to. This much is basic economics, I should have thought. Someone who has no more to give cannot, and there is little point asking.

Most of the wealth == most of the taxes. This is justified in a basic arithmetical sense.

> Most of the wealth == most of the taxes. This is justified in a basic arithmetical sense.

No, most of the income == most of the taxes, and that is the situation we are already in. My point is that it's hard to justify asking for even more money from the group of people who already pay more than half of the taxes.

You're quite right, my apologies, I saw a thing and wrote a response to something you hadn't said.

I suppose I mean to say that this is the thing really - income tax on its own is not working, evidently, given that it is so easily avoided. Surely the idea is that everyone should want to commit as much as they can to the furtherment of their community, nation and species. The very fact that things like this, game-theoretic winner-take-all, tax "avoidance" (because it's legal, therefore morally fine), exist is enough to make me wonder if there is any point at all to my existence, let alone the existence of the poor sods who aren't fortunate to make even as much as I.

But then I strongly suspect I'm a lefty pinko communist and shouldn't be trusted in a proper discussion about actual fiscal policy.

There are many people that don't view the expansion of a government's budget as the 'furtherment of their community'. When you hold the view that governments are full of corruption and incompetence, then the moral thing to do is deprive it of as much income as possible.

I think I could justify it just fine.

> I think I could justify it just fine.

Do it, then. Don't just post worthless snark.

Taxes on the wealthy are at historic lows and wealth inequality at historic highs at a time when we have many important but underfunded programs that would benefit all of us. What's the argument against it? That it isn't "fair"? That rich people will stop trying to earn more money? I don't find that to be credible.

There are several arguments against it:

If you depend on a small number of people for the majority of tax revenue, you will end up with unstable revenue. Look what happened to California's tax revenue during the 2008 recession. It dropped because the small number of rich people who pay more than half of the taxes got hit pretty hard by the recession.

Besides, do we really want to live in a society where only a small group of people has a financial stake in the funding of the government? Voters would probably be a bit more informed if they had some skin in the game. We really don't want to live in a society where the majority of voters will always approve spending increases because they know their taxes won't increase, and the cost of the increase will be borne by the top few percent. That will get us a runaway train of government spending.

Since the top 1% continue to accumulate a vast percent of the wealth, they are the best ones to tax to support the rest. It is unfortunately that things are so unbalanced that the poor don't have much to tax. We could choose to do nothing about it and let the rich keep more of the money. Eventually it will result in more of the poor and average people falling behind. Where will Walmart gets their billions when none of their workers and customers have money to spend? At the worst the whole economy will stagnate or people will revolt. The super rich could afford to take and "us vs them" mentality and bunker down somewhere safe.

Or... We could reduce government spending. That also works from an arithmetical standpoint.

The top three US non discretionary spending categories are Social Security, Medicare, and Defense. I whole heartedly agree it's time to gut US defense spending, considering we spend more than the next 10 countries combined.

Cutting spending would make the us look weak. Simply not increasing it drastically is good too. Over a long period of time inflation will take over and the spending amount as a percentage of gdp will go down.

Fair is in the eye of the beholder. But the only reason the rich pay so much in nominal taxes is because their incomes (which are directly and strongly correlated with their wealth) are so ridiculously high.

Keep in mind that just because Bob is paying a million dollars in taxes and Julia is paying ten dollars in taxes does not mean the system is unfair towards Bob. Especially if Bob should actually be paying three million dollars in taxes, but has used creative accounting practices and tax avoidance schemes to reduce his tax burden.

> Especially if Bob should actually be paying three million dollars in taxes, but has used creative accounting practices and tax avoidance schemes to reduce his tax burden.

If the accounting schemes and tax avoidance schemes are legal according to the tax code, then they are what determine what he should pay.

The amount someone should pay is the amount he or she is legally required to pay. The tax laws are the only standard by which the amount of taxes someone should pay can be determined.

And of course tax law has been the same since the dawn of time, there can be no argument to brook with the idea that it currently does not work.

Morals musn't enter this argument, it would muddy the waters too much.

Agree! Which is why it's time to vote for an increase in taxes on the highest marginal income bands.

And then, the law being the law, those taxes will be paid.

I thought we were talking about fairness, not legality. They are different concepts that are only sometimes related.

If we're just talking about 'fairness' in the non legal sense, why is it that taxes should be income-based anyway?

>Keep in mind that just because Bob is paying a million dollars in taxes and Julia is paying ten dollars in taxes does not mean the system is unfair towards Bob.

Yes it does. The reason Bob pays more has nothing to do with fairness. Bob has money the government can take without his permission and Julia doesn't. That's the long and the short of it.

Hmm, you didn't address his point about corporate loopholes and capital gains, which I thought was the more interesting part of the argument.

Reply on news.ycombinator.com