Mankiw wrong on estate tax
Rue The Day
> The estate tax is a tax on capital. As such, one would naturally expect it
> to discourage capital accumulation. Now, put this together with the fact
> that a smaller capital stock reduces productivity and labor income
> throughout the economy and the implication is clear:
> the repeal of the
> estate tax would stimulate growth and raise incomes for everyone, even
> those who never receive a bequest.
First, let us look at the notion that capital is somehow destroyed in
order to pay the estate tax. A wealthy man whose sole asset is a
factory dies and bequeaths the factory to his son. In order to pay
the estate tax, the son is forced to sell the factory to someone else.
What has happened? In effect, ownership of the factory was
transferred. The total capital stock of the nation is unchanged. It
is not as if the son were forced to demolish the factory and sell the
machines as scrap metal. Capital flowed from one person to another,
it was neither created nor destroyed. In all fairness to Mankiw, I
don't believe he is arguing that capital was destroyed, but it's
important that we nip that mistaken theory in the bud.
Now, what I believe Mankiw was arguing is that the mere presence of an
estate tax provides people with a disincentive to save. This theory
can easily be shown to be false as well. People save primarily as a
means of deferring consumption to a later point in time. It's a
matter of intertemporal choice. Since the estate tax does not tax
current income, and current income can be used either for consumption
or saving, clearly the presence of the estate tax does not provide a
disincentive to earn. So you say, "Aha! It provides a disincentive
to save. That's how it discourages capital accumulation." But the
estate tax is not paid at the time one makes the save/consume
decision. It is not a tax on savings. The criteria that are used to
determine whether one should consume now or defer that consumption and
save are in no way impacted by the estate tax. Income can be saved
and consumed later and still avoid being taxed. So it would appear
that the only possible way that the estate tax can alter behavior is
by encouraging people to consume/save as they ordinarily would, with
one exception - it would encourage people to liquidate all of their
assets immediately before they died and go on a spending spree in
order to avoid paying the estate tax. Apart from the practicality
concerns and the uncertainty of the time of death, there is a fatal
flaw in this logic. That flaw is the capital gains tax, which the
person would pay upon liquidating their assets. Thus, it is only
logical to conclude that the estate tax does not reduce the total
capital stock of the nation, it merely results in a different
distribution of it.
susupply
"Rue The Day" <ruet...@outgun.com>
who used the wrong word in his thread title (hint: antonym),
wrote in message news:a44a8c58.03111...@posting.google.com...
> First, let us look at the notion that capital is somehow destroyed in
> order to pay the estate tax.
That's not what Mankiw said. His words were:
> > The estate tax is a tax on capital. As such, one would naturally expect
it
> > to discourage capital accumulation.
And you even admit it:
> In all fairness to Mankiw, I
> don't believe he is arguing that capital was destroyed....
[snip]
> So it would appear
> that the only possible way that the estate tax can alter behavior is
> by encouraging people to consume/save as they ordinarily would, with
> one exception - it would encourage people to liquidate all of their
> assets immediately before they died and go on a spending spree in
> order to avoid paying the estate tax.
Didn't read Mankiw's paper, did you? He makes the same point Milton
Friedman did:
-----------------quote--------------------
Consider the story of twin brothers - Spendthrift Sam and Frugal
Frank. Each starts a dot-com after college and sells the business a few
years later,
accumulating a $10 million nest egg. Sam then lives the high life, enjoying
expensive
vacations and throwing lavish parties. Frank, meanwhile, lives more
modestly. He keeps
his fortune invested in the economy, where it finances capital accumulation,
new
technologies, and economic growth. He wants to leave most of his money to
his children,
grandchildren, nephews, and nieces.
Now ask yourself: Which millionaire should pay higher taxes? It seems
natural
that they should face the same tax burden. They both started life with the
same resources.
What notion of fairness suggests that they should face different tax
burdens? What
principle of social justice says that Frank should be penalized for his
frugality? None
that I know of.
Several years ago the book The Millionaire Next Door made bestseller lists
with
the message that getting rich is more often the result of patience than of
good luck.
Recent research suggests that this is right on the mark.Whether a person
reaches old age
wealthy or penniless mostly depends on the percentage of his earnings he
saved -not on
the total amount he made in his lifetime. This means that most of the burden
of the estate
tax falls not on those who have been lucky throughout life but rather on
those who have
been frugal. In other words, when the government taxes your estate, it is,
literally, taxing
your patience.
---------------------endquote-------------------
Anyway, your logic is also flawed in that you aren't considering the
opportunity costs of an heir having to sell a factory to pay estate taxes.
If the heir didn't have to do that, the prospective purchaser would have to
find another opportunity, which would include a start-up.
Tim Worstall
Two thoughts on this.
1) Capital stock is unchanged, yes. But the number of people with
large amounts of capital ( ie those children who have to pay the tax )
is reduced. As Gilder argues in " Wealth and Poverty " it is just
those rich , with an excess of capital over and above anything they
need for consumption purposes, either now or in the future, who
provide most of the venture capital. A reduction in the number of
people willing or able to undertake that form of investing could
indeed reduce future total wealth. Or could at least.
2) I think your second point ignores certain human reactions. People
want to provide for their children. What some have called the "
cascade of wealth down the generations " . An estate tax will change
people's willingness to save for this purpose, and thus could reduce
capital formation across the economy.
Another way of putting this is that I don't think the simple
formulations of the lifetime savings model are correct : Many desire
to leave capital, and thus choices, to children and grandchildren.
How important either of these two are I don't know. But I think it an
error to dismiss both of them as being non existent.
Tim Worstall
xenman
wrote:
>"susupply" <susu...@mindspring.com> wrote in message news:<06vrb.18356$Oo4....@newsread1.news.atl.earthlink.net>...
>> The estate tax is a tax on capital. As such, one would naturally expect it
>> to discourage capital accumulation. Now, put this together with the fact
>> that a smaller capital stock reduces productivity and labor income
>> throughout the economy and the implication is clear:
>> the repeal of the
>> estate tax would stimulate growth and raise incomes for everyone, even
>> those who never receive a bequest.
>
>First, let us look at the notion that capital is somehow destroyed in
>order to pay the estate tax. A wealthy man whose sole asset is a
>factory dies and bequeaths the factory to his son. In order to pay
>the estate tax, the son is forced to sell the factory to someone else.
> What has happened? In effect, ownership of the factory was
>transferred. The total capital stock of the nation is unchanged. It
>is not as if the son were forced to demolish the factory and sell the
>machines as scrap metal. Capital flowed from one person to another,
>it was neither created nor destroyed. In all fairness to Mankiw, I
>don't believe he is arguing that capital was destroyed, but it's
>important that we nip that mistaken theory in the bud.
>
[snip]
The problem with your analysis is the cash used to buy the
factory came from some kind of investment that had to be sold.
Likewise, the seller of the factory would in turn invest all the cash
if there were not taxes. What you have here is a net loss of
capital, liquid and non-liquid, that ends up being estate taxes.
Why you choose to ignore this obvous result is beyond my
comprehension.
ro...@telus.net
wrote:
>"Rue The Day" <ruet...@outgun.com>
>
>who used the wrong word in his thread title (hint: antonym),
>
> wrote in message news:a44a8c58.03111...@posting.google.com...
>
>> First, let us look at the notion that capital is somehow destroyed in
>> order to pay the estate tax.
>
>That's not what Mankiw said. His words were:
>
>> > The estate tax is a tax on capital.
I have already explained why that is a lie. So Rue is right, and
Patrick and Mankiw are wrong.
>>So it would appear
>> that the only possible way that the estate tax can alter behavior is
>> by encouraging people to consume/save as they ordinarily would, with
>> one exception - it would encourage people to liquidate all of their
>> assets immediately before they died and go on a spending spree in
>> order to avoid paying the estate tax.
>
>Didn't read Mankiw's paper, did you?
It is garbage, as explained below.
>He makes the same point Milton
>Friedman did:
>
>-----------------quote--------------------
>Consider the story of twin brothers - Spendthrift Sam and Frugal
>Frank. Each starts a dot-com after college and sells the business a few
>years later,
>accumulating a $10 million nest egg. Sam then lives the high life, enjoying
>expensive
>vacations and throwing lavish parties.
IOW, Sam gives his money to the people who are engaged in producing
the goods and services he wants to consume. The productive are of
course more likely than anyone else to use that money productively, so
unlike Frank, Sam has done the best he can to make that money
available for productive investment.
>Frank, meanwhile, lives more
>modestly. He keeps
>his fortune invested in the economy, where it finances capital accumulation,
>new technologies, and economic growth.
No, actually, it doesn't. Frank doesn't let the productive use his
money to finance capital accumulation, new technologies, or economic
growth; that would be too risky. Instead, he just buys up idle,
unproductive rent collection privileges like land, government bonds,
rentier stocks like Micro$oft, REITs, Fannie Maes, etc. His
"investments" typically add nothing whatever to production of wealth,
but only redirect wealth out of other people's pockets and into his
own -- unlike Sam's money, which went directly to the productive.
>He wants to leave most of his money to
>his children,
>grandchildren, nephews, and nieces.
His _equally_idle_and_parasitic_ children, grandchildren, nieces and
nephews...?
>Now ask yourself: Which millionaire should pay higher taxes?
Frugal Frank, beyond any possible question. All the great thinkers
are agreed on this point:
"The preservation of property is the end of government, and that for
which men enter into society. It is true governments cannot be
supported without great charge, and it is fit everyone who enjoys his
share of that protection should pay out of his estate his proportion
for the maintenance of it."
-- John Locke, Second Treatise on Government, 1690
"The revenues of the state are the fraction that each subject gives of
his property in order to secure or to have the agreeable enjoyment of
the remainder."
-- Baron de Montesquieu, The Spirit of Laws, 1751
"The expense of government to the individuals of a great nation is
like the expense of management to the joint tenants of a great estate,
who are all obliged to contribute in proportion to their respective
interests in the estate. In the observation or neglect of this maxim
consists what is called the equality or inequality of taxation."
-- Adam Smith, The wealth of Nations, 1776
"It is generally allowed by all, that men should contribute to the
public charge but according to the share and interest they have in the
public peace; that is, according to their estates or riches."
-- Sir William Petty, British Prime Minister, 1782-3
"Every man is bound to contribute to the public revenue in proportion
to the benefits he receives from the public protection."
-- Thomas M Cooley, Constitutional Limitation, 1868
A higher tax burden for Frank also satisfies the two most fundamental
and widely accepted principles of fair and economially efficient
taxation policy: ability to pay, and beneficiary pay. Frank is more
able to pay taxes because he has the assets, and is consequently
collecting unearned income from the community for doing nothing. He
is also thus benefiting far more from government spending than Sam, as
explained in the quotes above. Almost all government spending
ulltimately benefits asset owners, especially landowners, far more
than anyone else.
>It seems
>natural
>that they should face the same tax burden. They both started life with the
>same resources.
>What notion of fairness suggests that they should face different tax
>burdens? What
>principle of social justice says that Frank should be penalized for his
>frugality? None
>that I know of.
See above. He is not being "penalized for frugality." He is merely
being asked to pay appropriately for the additional benefits he
receives from government and the community by virtue of idly owning
his assets.
>Several years ago the book The Millionaire Next Door made bestseller lists
>with
>the message that getting rich is more often the result of patience than of
>good luck.
But carefully avoided mentioning the fact that it is most often the
result of privately pocketing publicly created value, and not paying
tax on it.
>Recent research suggests that this is right on the mark.Whether a person
>reaches old age
>wealthy or penniless mostly depends on the percentage of his earnings he
>saved -not on
>the total amount he made in his lifetime.
This is merely an artefact of treating mortgage payments (i.e.,
payments for the privilege of privately pocketing publicly created
value) as "savings."
>This means that most of the burden
>of the estate
>tax falls not on those who have been lucky throughout life but rather on
>those who have
>been frugal. In other words, when the government taxes your estate, it is,
>literally, taxing
>your patience.
>---------------------endquote-------------------
Better than taxing your production. While it would certainly be
fairer and more economically efficient to tax assets annually by value
as real estate is taxed, rather than only when they are transferred
through an estate, it is nevertheless fairer and more efficient to tax
estates than to tax the earned incomes of the productive.
>Anyway, your logic is also flawed in that you aren't considering the
>opportunity costs of an heir having to sell a factory to pay estate taxes.
>If the heir didn't have to do that, the prospective purchaser would have to
>find another opportunity, which would include a start-up.
Your logic has a much bigger flaw: you aren't considering the fact
that money spent on consumption of goods and services goes to the
producers of those goods and services, who are more likely than
non-producers to use it productively to produce more goods and
services. Money "invested" in idle rent collection privileges (by far
the majority of the assets of the rich), OTOH, does nothing whatever
to enhance production of goods and services, but only transfers wealth
away from the productive and into the idle "investor's" pockets.
-- Roy L
Rue The Day
> "Rue The Day" <ruet...@outgun.com>
>
> who used the wrong word in his thread title (hint: antonym),
>
> wrote in message news:a44a8c58.03111...@posting.google.com...
>
> > First, let us look at the notion that capital is somehow destroyed in
> > order to pay the estate tax.
>
> That's not what Mankiw said. His words were:
>
> > > The estate tax is a tax on capital. As such, one would naturally expect
> it
> > > to discourage capital accumulation.
>
> And you even admit it:
>
> > In all fairness to Mankiw, I
> > don't believe he is arguing that capital was destroyed....
>
> [snip]
That's right. I clearly stated that I was just providing some
background information for my argument at that point and not yet
directly addressing Mankiw's position.
Quite possibly the most ludicrous thing I have ever read. Let's add a
third character to this story - a taxi driver who is not a millionaire
and has to work in order to feed his family. Should he not have to
pay taxes either in this hypothetical example? Either we tax income
or we don't, and if we do, to suggest that wage income be taxed while
investment income is not in the name of "fairness" is lunacy.
Furthermore, Milton's example is just flat out wrong in that it fails
to account for the fact that Spendthrift Sam is paying sales tax on
goods he purchases, excise taxes on other goods, and property tax on
real property that he purchases. So to suggest that he's not paying
taxes is ignorant. Wasn't Milton Friedman the one who said that it's
not important if economic models don't reflect reality? Not
surprising.
> Several years ago the book The Millionaire Next Door made bestseller lists
> with
> the message that getting rich is more often the result of patience than of
> good luck.
> Recent research suggests that this is right on the mark.Whether a person
> reaches old age
> wealthy or penniless mostly depends on the percentage of his earnings he
> saved -not on
> the total amount he made in his lifetime. This means that most of the burden
> of the estate
> tax falls not on those who have been lucky throughout life but rather on
> those who have
> been frugal. In other words, when the government taxes your estate, it is,
> literally, taxing
> your patience.
> ---------------------endquote-------------------
Pure fiction. It's deceitful to suggest that most wealthy people
became wealthy by working hard and saving a large portion of their
wage, when in fact the reality is that most either inherited their
wealth or acquired it by collecting some sort of economic rent.
> Anyway, your logic is also flawed in that you aren't considering the
> opportunity costs of an heir having to sell a factory to pay estate taxes.
> If the heir didn't have to do that, the prospective purchaser would have to
> find another opportunity, which would include a start-up.
Opportunity costs are largely irrelevant to this particular analysis.
It's merely a transfer of an asset from one party to another. Much
like what happens when the old man dies and transfers the asset to his
son.
Rue The Day
> The problem with your analysis is the cash used to buy the
> factory came from some kind of investment that had to be sold.
To someone else. Which means it still exists.
> Likewise, the seller of the factory would in turn invest all the cash
> if there were not taxes.
That's an assumption. He might well have spent some of it.
Meanwhile, the government, might use it to fund investment in
infrastructure.
>What you have here is a net loss of
> capital, liquid and non-liquid, that ends up being estate taxes.
Incorrect. Cash is not capital.
> Why you choose to ignore this obvous result is beyond my
> comprehension.
Because the assumption is wrong.
sinister
No, what's truly beyond comprehension is your ignoring of the fact that
taxes have to be raised *somehow*. If we eliminate the estate tax, then we
have to raise the taxes from somewhere else.
xenman
>> Why you choose to ignore this obvous result is beyond my
>> comprehension.
>
>No, what's truly beyond comprehension is your ignoring of the fact that
>taxes have to be raised *somehow*. If we eliminate the estate tax, then we
>have to raise the taxes from somewhere else.
>
And what does your response have anything to do with whether or not
capital is reduced by estate taxes. This thread has a subject and
your response ignored it, as does this response.
xenman
wrote:
>xenman <xen...@sprynet.nospaam.com> wrote in message news:<29a2rvshq0fmhmppt...@4ax.com>...
>> The problem with your analysis is the cash used to buy the
>> factory came from some kind of investment that had to be sold.
>
>To someone else. Which means it still exists.
>
Yes it does. Which is why I pointed it out.
>> Likewise, the seller of the factory would in turn invest all the cash
>> if there were not taxes.
>
>That's an assumption. He might well have spent some of it.
>Meanwhile, the government, might use it to fund investment in
>infrastructure.
>
He may have spent some of it, but if the government takes it
in the form of taxes, it can't be either spent or invested. Since
government spending/investiing in infrastructure is decreasing
and spending on entitlements is increasing, you scenario is
unlikely.
>>What you have here is a net loss of
>> capital, liquid and non-liquid, that ends up being estate taxes.
>
>Incorrect. Cash is not capital.
>
Yes it is. No one puts cash in a hole in the ground. They invest
it, which means it is capital.
>> Why you choose to ignore this obvous result is beyond my
>> comprehension.
>
>Because the assumption is wrong.
It's really simple, assets were invested at X dollars before the
taxes and there are X minus T dollars invested after the tax.
This ain't rocket science.
Rue The Day
> > comprehension.
>
> No, what's truly beyond comprehension is your ignoring of the fact that
> taxes have to be raised *somehow*. If we eliminate the estate tax, then we
> have to raise the taxes from somewhere else.
That's right. Personally, I'd like to see all taxes replaced with a
land tax. But in the meantime, eliminating estate and investment
taxes mean that the entire burden falls on workers while those who
inherited vast sums of money and live off of the interest don't pay a
dime. It boggles the mind how anyone can argue that would be fair.
Rue The Day
Two problems with that analysis - 1. The tangible assets are still
there, just with a value of X-T. 2. The tax payments didn't just fall
off the face of the earth. The government either spent or invested
them, the person/entity that received them from the government either
spent or invested them and so on down the line.
sinister
> On 11 Nov 2003 14:29:58 -0800, ruet...@outgun.com (Rue The Day)
> wrote:
>
> >xenman <xen...@sprynet.nospaam.com> wrote in message
news:<29a2rvshq0fmhmppt...@4ax.com>...
> >> The problem with your analysis is the cash used to buy the
> >> factory came from some kind of investment that had to be sold.
> >
> >To someone else. Which means it still exists.
> >
>
> Yes it does. Which is why I pointed it out.
>
> >> Likewise, the seller of the factory would in turn invest all the cash
> >> if there were not taxes.
> >
> >That's an assumption. He might well have spent some of it.
> >Meanwhile, the government, might use it to fund investment in
> >infrastructure.
> >
>
> He may have spent some of it, but if the government takes it
> in the form of taxes, it can't be either spent or invested. Since
> government spending/investiing in infrastructure is decreasing
> and spending on entitlements is increasing, you scenario is
> unlikely.
But spending issues are in this context a red herring. The question is most
fairly posed in a revenue-neutral context. Otherwise, your point could be
countered with "well, maybe we should decrease payroll taxes and increase
estate taxes."
sinister
No I didn't. It was implicit.
Suppose you replace the estate tax with a slight increase in the capital
gains tax. Then the net effect on capital, to first order, is zero.
If you replace the estate tax with a tax on, say, income, then while it
might appear there's less of a burden on capital, it's not so clear.
Consumers will then have a little less money to spend. Given that most
corporate capital formation comes from retained profits, this will also
impact capital formation.
If you don't replace the taxes on estates with anything at all, you're not
revenue neutral, and the government will borrow the money. But then the
government is (by your lights) eating up capital...
My response was circumscribed as it was because other posters (not just the
ones responding to your post) debunked most of the bad ideas floating around
here.
sinister
"Tim Worstall" <t...@2xtreme.net> wrote in message
news:825e2890.03111...@posting.google.com...
But as Roy has pointed out, where's the evidence that this form of capital
formation is particularly useful?
And are you sure you want to cite Gilder as an authority on *anything*?
> 2) I think your second point ignores certain human reactions. People
> want to provide for their children. What some have called the "
> cascade of wealth down the generations " . An estate tax will change
> people's willingness to save for this purpose, and thus could reduce
> capital formation across the economy.
> Another way of putting this is that I don't think the simple
> formulations of the lifetime savings model are correct : Many desire
> to leave capital, and thus choices, to children and grandchildren.
>
> How important either of these two are I don't know. But I think it an
> error to dismiss both of them as being non existent.
They're not nonexistent, of course. The question is whether they're high
enough to make the estate tax, on balance, a bad idea. Doesn't seem likely,
and Mankiw provides no evidence that their is. (Just like there's little
empirical evidence of disincentive effects of the income tax on *high*
incomes (at least for males IIRC).)
>
> Tim Worstall
Dez Akin
>
> Two thoughts on this.
>
> 1) Capital stock is unchanged, yes. But the number of people with
> large amounts of capital ( ie those children who have to pay the tax )
> is reduced. As Gilder argues in " Wealth and Poverty " it is just
> those rich , with an excess of capital over and above anything they
> need for consumption purposes, either now or in the future, who
> provide most of the venture capital. A reduction in the number of
> people willing or able to undertake that form of investing could
> indeed reduce future total wealth. Or could at least.
But there is the rise of VC funds that individuals can contribute to
as part of a retirement package. Perhaps they're smaller and more
conservative than tradictional VC. How much does VC, given its
enourmous failure rate, contribute to the economy? What kind of
ventures are good for the economy that individuals will take a risk on
that corporations wont?
> 2) I think your second point ignores certain human reactions. People
> want to provide for their children. What some have called the "
> cascade of wealth down the generations " . An estate tax will change
> people's willingness to save for this purpose, and thus could reduce
> capital formation across the economy.
> Another way of putting this is that I don't think the simple
> formulations of the lifetime savings model are correct : Many desire
> to leave capital, and thus choices, to children and grandchildren.
I suspect that if the estate tax is below 60% people will save
anyways. Its still a sizable chunk of change you are passing on
towards your heirs.
> How important either of these two are I don't know. But I think it an
> error to dismiss both of them as being non existent.
I mostly agree. I'm slightly revolted by born privlage, and I think
that these points are largely less important than estate tax
detractors, but certainly a factor.
My opinion on the estate tax is to eliminate it because its
complicated, and just replace it with income tax. When you inherit
something it wasn't yours before, and it is yours now, so income. What
income tax structure you want is a different debate. With the current
estate tax or a total estate tax, the very rich who wish to finance
their heirs will likely just make them employees and siphon off large
chunks of the estate, form living trusts, or other legal shortcuts.
ro...@telus.net
wrote:
>On 11 Nov 2003 07:02:13 -0800, ruet...@outgun.com (Rue The Day)
>wrote:
>
>>"susupply" <susu...@mindspring.com> wrote in message news:<06vrb.18356$Oo4....@newsread1.news.atl.earthlink.net>...
>>> The estate tax is a tax on capital. As such, one would naturally expect it
>>> to discourage capital accumulation. Now, put this together with the fact
>>> that a smaller capital stock reduces productivity and labor income
>>> throughout the economy and the implication is clear:
>>> the repeal of the
>>> estate tax would stimulate growth and raise incomes for everyone, even
>>> those who never receive a bequest.
>>
>>First, let us look at the notion that capital is somehow destroyed in
>>order to pay the estate tax. A wealthy man whose sole asset is a
>>factory dies and bequeaths the factory to his son. In order to pay
>>the estate tax, the son is forced to sell the factory to someone else.
>> What has happened? In effect, ownership of the factory was
>>transferred. The total capital stock of the nation is unchanged. It
>>is not as if the son were forced to demolish the factory and sell the
>>machines as scrap metal. Capital flowed from one person to another,
>>it was neither created nor destroyed. In all fairness to Mankiw, I
>>don't believe he is arguing that capital was destroyed, but it's
>>important that we nip that mistaken theory in the bud.
>
>The problem with your analysis is the cash used to buy the
>factory came from some kind of investment that had to be sold.
?? If somebody sold it, somebody else bought it. Hello?
>Likewise, the seller of the factory would in turn invest all the cash
>if there were not taxes.
If you want capital accumulation to occur, having no taxes is not one
of the options.
>What you have here is a net loss of
>capital, liquid and non-liquid, that ends up being estate taxes.
Nope. You are assuming that whatever tax would be used to make up for
the absence of the estate tax would burden capital formation less than
the estate tax. That is far from being clear, let alone proved.
>Why you choose to ignore this obvous result is beyond my
>comprehension.
He ignores it because this "obvious" result is obviously wrong.
-- Roy L
ro...@telus.net
wrote:
>On 11 Nov 2003 14:29:58 -0800, ruet...@outgun.com (Rue The Day)
>wrote:
>
>>xenman <xen...@sprynet.nospaam.com> wrote in message news:<29a2rvshq0fmhmppt...@4ax.com>...
>>> The problem with your analysis is the cash used to buy the
>>> factory came from some kind of investment that had to be sold.
>>
>>To someone else. Which means it still exists.
>
>Yes it does. Which is why I pointed it out.
>
>>> Likewise, the seller of the factory would in turn invest all the cash
>>> if there were not taxes.
>>
>>That's an assumption. He might well have spent some of it.
>>Meanwhile, the government, might use it to fund investment in
>>infrastructure.
>
>He may have spent some of it, but if the government takes it
>in the form of taxes, it can't be either spent or invested.
?? It _will_ be spent or invested, just by the government rather than
the taxpayer.
>Since
>government spending/investiing in infrastructure is decreasing
>and spending on entitlements is increasing, you scenario is
>unlikely.
No less likely than the recipient spending it on productive capital
rather than consumption or rent collection privileges.
>>>What you have here is a net loss of
>>> capital, liquid and non-liquid, that ends up being estate taxes.
>>
>>Incorrect. Cash is not capital.
>
>Yes it is. No one puts cash in a hole in the ground.
They do economically equivalent things, like buy land.
>They invest
>it, which means it is capital.
No, it just flat-out _isn't_ capital, in the economic sense. Cash may
be capital in the accounting sense, but in economics, "capital" means
the durable goods that enhance production of goods and services. Cash
isn't goods, and doesn't enhance production unless employed thus.
>>> Why you choose to ignore this obvous result is beyond my
>>> comprehension.
>>
>>Because the assumption is wrong.
>
>It's really simple, assets were invested at X dollars before the
>taxes and there are X minus T dollars invested after the tax.
>This ain't rocket science.
It might as well be, for all you understand of it.
-- Roy L
Jim Blair
>"susupply" <susu...@mindspring.com> wrote:
>
>> Several years ago the book The Millionaire Next Door made bestseller lists
>> with
>> the message that getting rich is more often the result of patience than of
>> good luck.
>> Recent research suggests that this is right on the mark.Whether a person
>> reaches old age
>> wealthy or penniless mostly depends on the percentage of his earnings he
>> saved -not on
>> the total amount he made in his lifetime. This means that most of the burden
>> of the estate
>> tax falls not on those who have been lucky throughout life but rather on
>> those who have
>> been frugal. In other words, when the government taxes your estate, it is,
>> literally, taxing
>> your patience.
>> ---------------------endquote-------------------
ruet...@outgun.com (Rue The Day) wrote:
>
>Pure fiction. It's deceitful to suggest that most wealthy people
>became wealthy by working hard and saving a large portion of their
>wage, ...
Hi,
That does summarize the conclusions in The Millionaire Next Door.
This book is the most comprehensive attempt to study a much
envied but little understood culture: the US millionaire.
Stanley was a professor of marketing at Georgia State University,
and Danko is associate professor of marketing at State University
of New York, Albany. The authors surveyed 11,000 millionaires to
gather the data for this study. To qualify for the study, only
those with over 1 million dollars in total wealth (assets minus
liabilities) were included. The average (mean) household net
worth of those studied was $3.5 million, about 6% had over $10
million. Over a thousand answered a 249 question survey, and over
500 were interviewed.
The results, presented in this book, were a surprise to the
authors, and may be to you as well.
NOTE: the November '97 issue of READER'S DIGEST has a condensed
version of this book. It summarizes the practical steps to take
to become a millionaire.
>....when in fact the reality is that most either inherited their
>wealth or acquired it by collecting some sort of economic rent.
Stanley and Danko say about 80% of their millionaires inherited their
wealth. They explain where their data comes from. Where does your data
come from?
Maybe the key is in that "some sort of economic rent"?
Are millionaires typical of "wealthy people"? Mason Clark dismissed
the Stanley and Danko study as dealing with mere "middle class
millionaires".
,,,,,,,
_______________ooo___(_O O_)___ooo_______________
(_)
jim blair (jeb...@facstaff.wisc.edu) Madison Wisconsin
USA. This message was brought to you using biodegradable
binary bits, and 100% recycled bandwidth. For a good time
call: http://www.geocities.com/capitolhill/4834
Jim Blair
>.... Thus, it is only
>logical to conclude that the estate tax does not reduce the total
>capital stock of the nation, it merely results in a different
>distribution of it.
Hi,
It redistributes wealth from those who have it (and know they have it),
to the lawyers and estate planners who help them avoid the estate tax for
a fee.
The government collects it from those who didn't realize how much they
had, or didn't expect to die.
susupply
"Rue The Day" <ruet...@outgun.com>
admitting he began with a red herring,
wrote in message news:a44a8c58.03111...@posting.google.com...
> That's right. I clearly stated that I was just providing some
> background information for my argument at that point and not yet
> directly addressing Mankiw's position.
Why would you do that in a thread titled, "Mankiw wrong on estate tax"? A
title you created.
[snip story of Spendthrift Sam and Frugal Frank]
> Quite possibly the most ludicrous thing I have ever read. Let's add a
> third character to this story - a taxi driver who is not a millionaire
> and has to work in order to feed his family. Should he not have to
> pay taxes either in this hypothetical example?
He probably doesn't pay income taxes (federal, that is).
> Either we tax income
> or we don't, and if we do, to suggest that wage income be taxed while
> investment income is not in the name of "fairness" is lunacy.
Mankiw also didn't say that. You have some rather sloppy intellectual
habits.
> Furthermore, Milton's example is just flat out wrong in that it fails
> to account for the fact that Spendthrift Sam is paying sales tax on
> goods he purchases, excise taxes on other goods, and property tax on
> real property that he purchases.
Not to the federal government he isn't. (BTW, if he lives in Oregon,
Alaska, Delaware, Montana or New Hampshire, he isn't paying any state sales
tax either)
> So to suggest that he's not paying
> taxes is ignorant. Wasn't Milton Friedman the one who said that it's
> not important if economic models don't reflect reality? Not
> surprising.
I guess you think sci.econ posts shouldn't reflect reality?
[snip]
> > Anyway, your logic is also flawed in that you aren't considering the
> > opportunity costs of an heir having to sell a factory to pay estate
taxes.
> > If the heir didn't have to do that, the prospective purchaser would have
to
> > find another opportunity, which would include a start-up.
>
> Opportunity costs are largely irrelevant to this particular analysis.
> It's merely a transfer of an asset from one party to another. Much
> like what happens when the old man dies and transfers the asset to his
> son.
You missed the point completely. If an heir does not have to sell the
family factory to satisfy estate taxes it will continue to exist. AND, the
investor who would have purchased that factory will have to find another
investment opportunity for his money. Meaning he can invest in a new
factory, and the country will have two, rather than one factories.
Albert Wagner
Jim Blair <s...@sig.com> wrote:
<snip>
> and Danko is associate professor of marketing at State University
> of New York, Albany. The authors surveyed 11,000 millionaires to
> gather the data for this study. To qualify for the study, only
> those with over 1 million dollars in total wealth (assets minus
> liabilities) were included. The average (mean) household net
> worth of those studied was $3.5 million, about 6% had over $10
> million. Over a thousand answered a 249 question survey, and over
> 500 were interviewed.
>
> The results, presented in this book, were a surprise to the
> authors, and may be to you as well.
>
> NOTE: the November '97 issue of READER'S DIGEST has a condensed
> version of this book. It summarizes the practical steps to take
> to become a millionaire.
Well, everyone knows that it was a copy of READER'S DIGEST that Moses
brought down from sinai.
>
>
> >....when in fact the reality is that most either inherited their
> >wealth or acquired it by collecting some sort of economic rent.
>
> Stanley and Danko say about 80% of their millionaires inherited their
> wealth. They explain where their data comes from. Where does your data
>
> come from?
Looks to me that his data might well have come for Stanley and Danko
themselves. 80% qualifies as "most" in my book.
<snip>
--
Life is an offensive, directed against the repetitious mechanism of the
Universe.
--Alfred North Whitehead (1861-1947)
ro...@telus.net
wrote:
>>"susupply" <susu...@mindspring.com> wrote:
>>
>>> Several years ago the book The Millionaire Next Door made bestseller lists
>>> with
>>> the message that getting rich is more often the result of patience than of
>>> good luck.
>>> Recent research suggests that this is right on the mark.Whether a person
>>> reaches old age
>>> wealthy or penniless mostly depends on the percentage of his earnings he
>>> saved -not on
>>> the total amount he made in his lifetime. This means that most of the burden
>>> of the estate
>>> tax falls not on those who have been lucky throughout life but rather on
>>> those who have
>>> been frugal. In other words, when the government taxes your estate, it is,
>>> literally, taxing
>>> your patience.
>>> ---------------------endquote-------------------
>
>ruet...@outgun.com (Rue The Day) wrote:
>>
>>Pure fiction. It's deceitful to suggest that most wealthy people
>>became wealthy by working hard and saving a large portion of their
>>wage, ...
>
>That does summarize the conclusions in The Millionaire Next Door.
I have already exposed that piece of trash as the blatant propaganda
exercise it is. I will now do so again:
The respondents did work hard... but not to create wealth -- only to
place themselves in positions where they would be able to intercept
and pocket the wealth created by others. They did save a large
portion of their (mainly unearned) incomes... but mainly by arranging
not to pay income tax on them.
>This book is the most comprehensive attempt to study a much
>envied but little understood culture: the US millionaire.
That is false and ridiculous. It was not a remotely scientific study,
but grossly tendentious in both design and execution, and from an
economics standpoint, was an amateurish and even sophomoric exercise.
Basically, all they did was invite the marginally well-to-do to
pontificate on how virtuous, thrifty, and deserving they were.
>Stanley was a professor of marketing at Georgia State University,
>and Danko is associate professor of marketing at State University
>of New York, Albany.
Right. Neither of them has ever demonstrated any knowledge of the
relevant economics. TMND was primarily a marketing project, a
propaganda piece to improve the public image of the ultra-rich in the
USA by first pretending that ultra-rich billionaires get their
billions the same way middle class millionaires get one or two
millions, and then carefully not looking very closely at how the
latter achieve even that modest result.
>The authors surveyed 11,000 millionaires to
>gather the data for this study.
IOW, the "sample" was entirely self-selected: anyone who wasn't
especially proud of how he got his money, or had enough (or had it
long enough) to be suspicious of such a survey, was simply excluded
from the data. The old rich know better than to divulge any
information about their affairs, so not a single one of them answered
the survey. The survey results are thus complete garbage. The
authors might as well have sat in their basements and made up all the
data themselves.
>To qualify for the study, only
>those with over 1 million dollars in total wealth (assets minus
>liabilities) were included. The average (mean) household net
>worth of those studied was $3.5 million, about 6% had over $10
>million. Over a thousand answered a 249 question survey, and over
>500 were interviewed.
IOW, almost none of the respondents was really rich, and the
overwhelming majority had only 1 or 2 $M.
>The results, presented in this book, were a surprise to the
>authors, and may be to you as well.
Not when you understand how grossly tendentious, unscientific and
unrepresentative the sample and questions were.
>>....when in fact the reality is that most either inherited their
>>wealth or acquired it by collecting some sort of economic rent.
>
>Stanley and Danko say about 80% of their millionaires inherited their
>wealth.
I think you mean that they claim 80% _didn't_. But the way they
arrive at this figure is just ridiculous: passive growth of asset
value from the time of inheritance to the time of the survey was not
counted; gifts other than inheritances from family members were not
counted; loans from parents or other family members to finance
education or asset (especially land) purchases were not counted;
highly paid jobs warming seats at family businesses were not counted;
etc.
>They explain where their data comes from.
Wrong. _I_ have explained where their data come from.
>Where does your data come from?
The lack of data on the really rich is the most informative datum of
all.
>Maybe the key is in that "some sort of economic rent"?
Right. The late-night infomercials are quite correct: almost all
sizable fortunes are founded on private appropriation of publicly
created rent collection privileges, especially land titles.
>Are millionaires typical of "wealthy people"?
And are the survey respondents even typical of millionaires?
>Mason Clark dismissed
>the Stanley and Danko study as dealing with mere "middle class
>millionaires".
An entirely accurate description. Even the Fed's data on consumer
finances exclude the very wealthiest households -- who just happen to
own almost half of all the privately owned assets.
-- Roy L
ro...@telus.net
<susu...@mindspring.com>,
proving that dishonesty is the best policy (the best one he can come
up with, anyway), wrote:
>"Rue The Day" <ruet...@outgun.com>
>
>admitting he began with a red herring,
>
> wrote in message news:a44a8c58.03111...@posting.google.com...
>
>> That's right. I clearly stated that I was just providing some
>> background information for my argument at that point and not yet
>> directly addressing Mankiw's position.
>
>Why would you do that in a thread titled, "Mankiw wrong on estate tax"? A
>title you created.
Because unlike you, he understands that context is necessary to an
honest and informative discussion (or do you habitually chop the
context just _because_ you also understand that?).
>[snip story of Spendthrift Sam and Frugal Frank]
>
>> Quite possibly the most ludicrous thing I have ever read. Let's add a
>> third character to this story - a taxi driver who is not a millionaire
>> and has to work in order to feed his family. Should he not have to
>> pay taxes either in this hypothetical example?
>
>He probably doesn't pay income taxes (federal, that is).
Lie. He probably does.
>> Either we tax income
>> or we don't, and if we do, to suggest that wage income be taxed while
>> investment income is not in the name of "fairness" is lunacy.
>
>Mankiw also didn't say that.
Right. Mankiw carefully avoided identifying who should be taxed, and
for what, in order to make up the foregone estate tax revenue --
microscopic as it is.
>You have some rather sloppy intellectual
>habits.
?? _This_, from _you_?? ROTFL!!
>> Furthermore, Milton's example is just flat out wrong in that it fails
>> to account for the fact that Spendthrift Sam is paying sales tax on
>> goods he purchases, excise taxes on other goods, and property tax on
>> real property that he purchases.
>
>Not to the federal government he isn't.
Wrong. Many of his purchases will likely be taxed federally, and he
will also be sharing some portion of the federal income tax burdens of
many of the providers he buys his consumer goods and services from.
>(BTW, if he lives in Oregon,
>Alaska, Delaware, Montana or New Hampshire, he isn't paying any state sales
>tax either)
He is paying federal excise taxes, tariffs, etc.
>> So to suggest that he's not paying
>> taxes is ignorant. Wasn't Milton Friedman the one who said that it's
>> not important if economic models don't reflect reality? Not
>> surprising.
>
>I guess you think sci.econ posts shouldn't reflect reality?
Yours certainly don't, and the Mankiw exerpt is a perfect example.
>> > Anyway, your logic is also flawed in that you aren't considering the
>> > opportunity costs of an heir having to sell a factory to pay estate
>taxes.
>> > If the heir didn't have to do that, the prospective purchaser would have
>to
>> > find another opportunity, which would include a start-up.
>>
>> Opportunity costs are largely irrelevant to this particular analysis.
>> It's merely a transfer of an asset from one party to another. Much
>> like what happens when the old man dies and transfers the asset to his
>> son.
>
>You missed the point completely.
No, it was the "point" that missed completely. The argument about
opportunity cost is completely spurious, because it doesn't consider
all aspects of the transactions.
>If an heir does not have to sell the
>family factory to satisfy estate taxes it will continue to exist.
?? And it would somehow be vaporized if he sells it to someone who is
able to use it more productively?
>AND, the
>investor who would have purchased that factory will have to find another
>investment opportunity for his money. Meaning he can invest in a new
>factory, and the country will have two, rather than one factories.
No. Both the heir and the prospective buyer want to make money, and
so do their other potential competitors. If there is room in the
market for another factory of that type, _someone_ will build it,
estate tax or no.
In any case, the heir will only sell if the buyer will be a more
efficient user of the factory -- otherwise, he would just borrow to
pay the estate tax. So to the extent that it affects capital
investment decisions at all, the estate tax just makes the capital
markets more liquid.
-- Roy L
Rue The Day
Jim Blair <s...@sig.com> wrote in message news:<bou1fi$1ta$1...@news.doit.wisc.edu>...
> ruet...@outgun.com (Rue The Day) wrote:
> >
> >Pure fiction. It's deceitful to suggest that most wealthy people
> >became wealthy by working hard and saving a large portion of their
> >wage, ...
>
> Hi,
>
> That does summarize the conclusions in The Millionaire Next Door.
Then you say:
> >....when in fact the reality is that most either inherited their
> >wealth or acquired it by collecting some sort of economic rent.
>
> Stanley and Danko say about 80% of their millionaires inherited their
> wealth. They explain where their data comes from. Where does your data
> come from?
Make up your mind. They either worked hard and saved or they
inherited their wealth. Or are you arguing the semantic point that
80% is not "most"?
xenman
wrote:
>
>"xenman" <xen...@sprynet.nospaam.com> wrote in message
>news:2r43rv4c5lpi42js2...@4ax.com...
>>
>> >> Why you choose to ignore this obvous result is beyond my
>> >> comprehension.
>> >
>> >No, what's truly beyond comprehension is your ignoring of the fact that
>> >taxes have to be raised *somehow*. If we eliminate the estate tax, then
>we
>> >have to raise the taxes from somewhere else.
>> >
>>
>> And what does your response have anything to do with whether or not
>> capital is reduced by estate taxes. This thread has a subject and
>> your response ignored it, as does this response.
>
>No I didn't. It was implicit.
>
>Suppose you replace the estate tax with a slight increase in the capital
>gains tax. Then the net effect on capital, to first order, is zero.
>
Actually, that is what will happend in 2010, according to my
tax accountant, except probably not in the way that you envision.
Currently when an asset is passed to an heir by inheritance, the
cost basis of the asset is reset to the value of the asset at the day
of death. Beginning in 2010, the cost basis will remain unchanged
when an asset is inherited.
Example: Suppose Grandpa, a widow, bought Microsoft at a split
adjusted price of $5/share. When he dies the value is $20/share.
You inherit the shares of stock. Later on you sell it at $25/share.
Under current law you would have a taxable gain of $5/share. Under
the law expected in 2010, you would have a taxable gain of $20/share.
When the estate tax is eliminated, it will be replaced with a capital
gains tax, according to my CPA tax accountant. Now, other people
have in the past called me a bold faced liar for writing this because
it didn't fit into their preconcieved notions of taxation.
xenman
wrote:
>"sinister" <sini...@nospam.invalid> wrote in message news:<wwdsb.40192$p9.1...@nwrddc02.gnilink.net>...
I've never heard anyone argue that we should eliminate all taxes on
investment income. Replacing the estate tax with a capital gains tax
would be fair,.. Ooops, they already plan to do that.
Rue The Day
> ruet...@outgun.com (Rue The Day) wrote:
>
>
> >.... Thus, it is only
> >logical to conclude that the estate tax does not reduce the total
> >capital stock of the nation, it merely results in a different
> >distribution of it.
> Hi,
>
> It redistributes wealth from those who have it (and know they have it),
> to the lawyers and estate planners who help them avoid the estate tax for
> a fee.
If, as someone else mentioned, you replace the estate tax with an
unexcludable income tax on the heir, that problem goes away.
> The government collects it from those who didn't realize how much they
> had, or didn't expect to die.
See above.
xenman
>
>Pure fiction. It's deceitful to suggest that most wealthy people
>became wealthy by working hard and saving a large portion of their
>wage, when in fact the reality is that most either inherited their
>wealth or acquired it by collecting some sort of economic rent.
>
Well, what's fiction to one person is true fact to another peson.
A brief look at the Forbes 400, as an example of the super wealthy
shows that the majority did not inherit their wealth. When I first
saw that it as an eye opener for me, as I thought like you, that
the wealthy usually inherited their wealth. Since then I've
become more worldly and knowledgeable and have discovered
that most people that could be classified as wealthy, say $1M,
earned their wealth. It was usually done through small
businesses and not spending all that they earned. It should also
be noted that the wealthiest age group is 65 and older, which means
they've had a lifetime to acquire and invest their wealth. I can tell
you that I personally know a number of wealthy people, and the
vast majority earned it rather than inherited it.
Rue The Day
> "Rue The Day" <ruet...@outgun.com>
>
> admitting he began with a red herring,
>
> wrote in message news:a44a8c58.03111...@posting.google.com...
>
> > That's right. I clearly stated that I was just providing some
> > background information for my argument at that point and not yet
> > directly addressing Mankiw's position.
>
> Why would you do that in a thread titled, "Mankiw wrong on estate tax"? A
> title you created.
I was being thorough. You should try it some time.
> > Quite possibly the most ludicrous thing I have ever read. Let's add a
> > third character to this story - a taxi driver who is not a millionaire
> > and has to work in order to feed his family. Should he not have to
> > pay taxes either in this hypothetical example?
>
> He probably doesn't pay income taxes (federal, that is).
Sure he does. A full-time taxi driver in any major American city can
easily make $40k/year. And if he's married, it's likely that his wife
works too, so they're almost certainly paying federal income tax. And
without any doubt, they are paying FICA tax. It's a very fashionable
lie amongst the neoconservative unintelligentsia these days that the
poor and working classes do not pay taxes, but it is a lie
nonetheless.
> > Either we tax income
> > or we don't, and if we do, to suggest that wage income be taxed while
> > investment income is not in the name of "fairness" is lunacy.
>
> Mankiw also didn't say that. You have some rather sloppy intellectual
> habits.
He argued against the estate tax on fairness grounds in his
Spendthrift Sam and Frugal Frank parable. Why don't you read what you
copy and paste?
> > Furthermore, Milton's example is just flat out wrong in that it fails
> > to account for the fact that Spendthrift Sam is paying sales tax on
> > goods he purchases, excise taxes on other goods, and property tax on
> > real property that he purchases.
>
> Not to the federal government he isn't. (BTW, if he lives in Oregon,
> Alaska, Delaware, Montana or New Hampshire, he isn't paying any state sales
> tax either)
So local and state taxes don't count now? Keep squirming.
> > So to suggest that he's not paying
> > taxes is ignorant. Wasn't Milton Friedman the one who said that it's
> > not important if economic models don't reflect reality? Not
> > surprising.
>
> I guess you think sci.econ posts shouldn't reflect reality?
Yours clearly don't.
> > > Anyway, your logic is also flawed in that you aren't considering the
> > > opportunity costs of an heir having to sell a factory to pay estate
> taxes.
> > > If the heir didn't have to do that, the prospective purchaser would have
> to
> > > find another opportunity, which would include a start-up.
> >
> > Opportunity costs are largely irrelevant to this particular analysis.
> > It's merely a transfer of an asset from one party to another. Much
> > like what happens when the old man dies and transfers the asset to his
> > son.
>
> You missed the point completely. If an heir does not have to sell the
> family factory to satisfy estate taxes it will continue to exist. AND, the
> investor who would have purchased that factory will have to find another
> investment opportunity for his money. Meaning he can invest in a new
> factory, and the country will have two, rather than one factories.
Or he will buy land or maybe T-Bonds, neither of which represent a
productive investment, or maybe he will just buy another existing
factory.
sinister
> On Wed, 12 Nov 2003 13:00:22 GMT, "sinister" <sini...@nospam.invalid>
> wrote:
>
> >
> >"xenman" <xen...@sprynet.nospaam.com> wrote in message
> >news:2r43rv4c5lpi42js2...@4ax.com...
> >>
> >> >> Why you choose to ignore this obvous result is beyond my
> >> >> comprehension.
> >> >
> >> >No, what's truly beyond comprehension is your ignoring of the fact
that
> >> >taxes have to be raised *somehow*. If we eliminate the estate tax,
then
> >we
> >> >have to raise the taxes from somewhere else.
> >> >
> >>
> >> And what does your response have anything to do with whether or not
> >> capital is reduced by estate taxes. This thread has a subject and
> >> your response ignored it, as does this response.
> >
> >No I didn't. It was implicit.
> >
> >Suppose you replace the estate tax with a slight increase in the capital
> >gains tax. Then the net effect on capital, to first order, is zero.
> >
>
> Actually, that is what will happend in 2010, according to my
> tax accountant, except probably not in the way that you envision.
> Currently when an asset is passed to an heir by inheritance, the
> cost basis of the asset is reset to the value of the asset at the day
> of death. Beginning in 2010, the cost basis will remain unchanged
> when an asset is inherited.
I know that that idea is being batted around. But I've also heard proposals
to leave in place the current situation (reseting the cost basis).
But
(a) the heir pays no tax, change in basis or no, until she sells it;
(b) you don't provide any evidence that this will make up for the loss in
tax revenue due to repealing the estate tax.
> Example: Suppose Grandpa, a widow, bought Microsoft at a split
> adjusted price of $5/share. When he dies the value is $20/share.
> You inherit the shares of stock. Later on you sell it at $25/share.
> Under current law you would have a taxable gain of $5/share. Under
> the law expected in 2010, you would have a taxable gain of $20/share.
>
> When the estate tax is eliminated, it will be replaced with a capital
> gains tax, according to my CPA tax accountant. Now, other people
> have in the past called me a bold faced liar for writing this because
> it didn't fit into their preconcieved notions of taxation.
When the estate tax is eliminated, it will be replaced with whatever
Congress and the President decide to replace it with. It doesn't bode well
that the same parties who desire to eliminate the estate tax are tripping
over themselves trying to replace the progressive income tax with a
so-called flat tax and/or consumption taxes, to reduce capital gains taxes
(which are lower than income taxes), and to eliminate taxes on unearned
income.
Tim Worstall
An " authority " ? Perhaps not. I am perhap[s too susceptible to the
last Laureates bbok that I've read. Only got to Gilder a few weeks
ago.
>
> > 2) I think your second point ignores certain human reactions. People
> > want to provide for their children. What some have called the "
> > cascade of wealth down the generations " . An estate tax will change
> > people's willingness to save for this purpose, and thus could reduce
> > capital formation across the economy.
> > Another way of putting this is that I don't think the simple
> > formulations of the lifetime savings model are correct : Many desire
> > to leave capital, and thus choices, to children and grandchildren.
> >
> > How important either of these two are I don't know. But I think it an
> > error to dismiss both of them as being non existent.
>
> They're not nonexistent, of course. The question is whether they're high
> enough to make the estate tax, on balance, a bad idea. Doesn't seem likely,
" Likely " to which the answer is, someone ought to go and do an
empirical study, Then we'll know.
> and Mankiw provides no evidence that their is. (Just like there's little
> empirical evidence of disincentive effects of the income tax on *high*
> incomes (at least for males IIRC).)
That last I simply don't believe. At high tax rates ( say the 83 % on
incomes in the UK in 1965 - 1979 ) there was certainly a trade off
amongst the high paid : more leisure less earning. And one does notice
a higher level of DIY amongst high earners in high tax economies :
neurosurgeons taking a week off to paint their house rather than
paying house painters to do it is a gross loss to the economy ( to use
an example from Sweden in " Eat the Rich " ). And the earlier UK
example also had " tax exiles " in great abundance : something rather
more difficult for US citizens to acheive. Your contention would also
make it rather difficult to explain why the LAffer curve was shown to
be correct, at least in relation to income taxes, in both the UK and
the US. Lower rates brought in more tax, both in total and as a
proportion of income tax collected.
Tim Worstall
>
> >
> > Tim Worstall
Tim Worstall
> t...@2xtreme.net (Tim Worstall) wrote in message news:<825e2890.03111...@posting.google.com>...
> >
> > Two thoughts on this.
> >
> > 1) Capital stock is unchanged, yes. But the number of people with
> > large amounts of capital ( ie those children who have to pay the tax )
> > is reduced. As Gilder argues in " Wealth and Poverty " it is just
> > those rich , with an excess of capital over and above anything they
> > need for consumption purposes, either now or in the future, who
> > provide most of the venture capital. A reduction in the number of
> > people willing or able to undertake that form of investing could
> > indeed reduce future total wealth. Or could at least.
>
> But there is the rise of VC funds that individuals can contribute to
> as part of a retirement package. Perhaps they're smaller and more
> conservative than tradictional VC. How much does VC, given its
> enourmous failure rate, contribute to the economy? What kind of
> ventures are good for the economy that individuals will take a risk on
> that corporations wont?
Individuals have both faster decisions making processes, and are
willing to look at much smaller operations. $ 50,000 - $ 500,000 will
start many types of small business. One cannot get that sort of
capital from any institutional arrangement. ( I write as one whose
business life has been concentrated in this size of business ).
>
> > 2) I think your second point ignores certain human reactions. People
> > want to provide for their children. What some have called the "
> > cascade of wealth down the generations " . An estate tax will change
> > people's willingness to save for this purpose, and thus could reduce
> > capital formation across the economy.
> > Another way of putting this is that I don't think the simple
> > formulations of the lifetime savings model are correct : Many desire
> > to leave capital, and thus choices, to children and grandchildren.
>
> I suspect that if the estate tax is below 60% people will save
> anyways. Its still a sizable chunk of change you are passing on
> towards your heirs.
>
> > How important either of these two are I don't know. But I think it an
> > error to dismiss both of them as being non existent.
>
> I mostly agree. I'm slightly revolted by born privlage, and I think
> that these points are largely less important than estate tax
> detractors, but certainly a factor.
>
> My opinion on the estate tax is to eliminate it because its
> complicated, and just replace it with income tax. When you inherit
> something it wasn't yours before, and it is yours now, so income. What
> income tax structure you want is a different debate. With the current
> estate tax or a total estate tax, the very rich who wish to finance
> their heirs will likely just make them employees and siphon off large
> chunks of the estate, form living trusts, or other legal shortcuts.
I agree that the current estate tax in the US, and inheritance tax in
the UK, don't actually acheive what they are setting out to do:both
raise tax revenue (there is ample evidence in the UK that collection
costs are near revenue collected ) and reduce born privilege for
social reasons. The latter simply isn't working becasue there are too
many other ways to pass on the loot. The truly rich are not affected
by it. In the UK for example, it's the middle classes with a house in
an expensive area : the tax kicks in at 250,000 pounds, the price of a
three bedroomed in much of London.
I would rather move to an expenditure tax system. All savings are tax
free until spent on consumption :at which point they pay taxes, which
can be progressive if one wishes. All money form income put into
savigs is similarly tax free.
Tim Worstall
Rue The Day
Hello??!! In the original Bush tax proposal, the plan was to entirely
remove the tax on stock dividends.
sinister
Really? That's surprising.
> Replacing the estate tax with a capital gains tax
> would be fair,..
Not necessarily, and it would depend on the terms.
sinister
news:<dd43b4da.03111...@posting.google.com>...
> > t...@2xtreme.net (Tim Worstall) wrote in message
news:<825e2890.03111...@posting.google.com>...
> > >
> > > Two thoughts on this.
> > >
> > > 1) Capital stock is unchanged, yes. But the number of people with
> > > large amounts of capital ( ie those children who have to pay the tax )
> > > is reduced. As Gilder argues in " Wealth and Poverty " it is just
> > > those rich , with an excess of capital over and above anything they
> > > need for consumption purposes, either now or in the future, who
> > > provide most of the venture capital. A reduction in the number of
> > > people willing or able to undertake that form of investing could
> > > indeed reduce future total wealth. Or could at least.
> >
> > But there is the rise of VC funds that individuals can contribute to
> > as part of a retirement package. Perhaps they're smaller and more
> > conservative than tradictional VC. How much does VC, given its
> > enourmous failure rate, contribute to the economy? What kind of
> > ventures are good for the economy that individuals will take a risk on
> > that corporations wont?
>
> Individuals have both faster decisions making processes, and are
> willing to look at much smaller operations. $ 50,000 - $ 500,000 will
> start many types of small business. One cannot get that sort of
> capital from any institutional arrangement. ( I write as one whose
> business life has been concentrated in this size of business ).
Well, you're wrong. I have a friend who's about $80,000 in debt, most of it
credit card debt, run up trying to start a small business.
Pretty convenient for the rich, who spend much less on consumption than
anyone else. Does nothing to reduce rent collection, either.
And how do you define "consumption"? Suppose Rupert Murdoch buys up radio
stations with the aim of garnering political influence. Is that an
"investment"?
> Tim Worstall
sinister
I think the onus is on the people who claim the esetate tax is "bad", given
(a) how far into the future it affects a particular individual, (b)
first-order human psychology (viz, people like building wealth, can give
their children substantial amounts *before* they did, etc etc).
>
>
>
> > and Mankiw provides no evidence that their is. (Just like there's
little
> > empirical evidence of disincentive effects of the income tax on *high*
> > incomes (at least for males IIRC).)
>
> That last I simply don't believe. At high tax rates ( say the 83 % on
> incomes in the UK in 1965 - 1979 ) there was certainly a trade off
> amongst the high paid : more leisure less earning.
But the tax level in the US right now is 39% or less. That's a far cry from
83%.
More to the point, the theory about the tradeoff between leisure and earning
is limited--this is something many economists seem not to understand, but
it's obvious. Look at Bill Gates. In the leisure/luxury model, why would
he work at all? The same argument applies to many people who make lots of
money.
> And one does notice
> a higher level of DIY amongst high earners in high tax economies :
> neurosurgeons taking a week off to paint their house rather than
> paying house painters to do it is a gross loss to the economy ( to use
> an example from Sweden in " Eat the Rich " ).
That's an example of people not knowing how to value their time. Not
surprising in the case of doctors, who are amazingly "innumerate".
> And the earlier UK
> example also had " tax exiles " in great abundance : something rather
> more difficult for US citizens to acheive. Your contention would also
> make it rather difficult to explain why the LAffer curve was shown to
> be correct, at least in relation to income taxes, in both the UK and
> the US. Lower rates brought in more tax, both in total and as a
> proportion of income tax collected.
Over what time period? During and after the Reagan era in the US? And what
about when Clinton *raised* the income tax?
> Tim Worstall
> >
> > >
> > > Tim Worstall
Rue The Day
> I would rather move to an expenditure tax system. All savings are tax
> free until spent on consumption :at which point they pay taxes, which
> can be progressive if one wishes. All money form income put into
> savigs is similarly tax free.
>
> Tim Worstall
How does one enact a progressive consumption tax? I suppose exempting
necessities and taxing luxuries at a higher rate than other goods
could be considered progressive if you really stretch the definition
of the term "progressive", but I still don't see it.
sinister
From _Taxing Ourselves: A Citizen's Guide to the Great Debate over Tax
Reform_, 2nd edition, p. 107:
"What does the evidence show? The responsiveness of the labor supply, both
in hours worked and the labor-force participation rate, has been studied
extensively and is a rare example of a question on which there is a broad
concensus among economists. Nearly all research concludes that male
participation and hours worked respond hardly at all to changes in after-tax
wages and therefore to marginal tax rates. There is evidence that female
labor-force participation and male retirement decisions are somewhat
responsive, but those responses do not contribute enough to total labor
supply to alter the conclusion that, overall, labor supply is not greatly
affected by taxes."
> Tim Worstall
> >
> > >
> > > Tim Worstall
Tim Worstall
You forget : company profits are already taxed at the company level.
They are then taxed again if they are paid out as dividends : in the
form of taxes on dividend income. So they are double taxed.
You are correct that the original plan would have removed the tax on
stock dividends : but not the prior taxation of the company profits.
This would have brought the US broadly into line with other countries
: for example, in the UK,
Only retained company profits are subject to corporation tax :
distributed profits ( ie dividends ) are not taxed a thte company
level : They are taxed as income for the people receiving them (
although it is a touch more complicated, The company collects this
income tax in the form of Advanced Corporation Tax ....but don't worry
about that ).
Whatever you think the correct level of taxation of dividends or
corporate profits should be, it's difficult to argue that dividends
should be double taxed.
Tim Worstall
tonyp
"Tim Worstall" <t...@2xtreme.net> wrote
> Whatever you think the correct level of taxation of dividends or
> corporate profits should be, it's difficult to argue that dividends
> should be double taxed.
Do you really mean "whatever"? Consider two cases:
1) Corporate income tax 0%, personal dividend tax 40.5%
2) Corporate income tax 30%, personal dividend tax 15%
In both cases, $1 of company profit becomes 59.5 cents of after-tax cash in the
shareholder's pocket. To first order, what the hell difference does it make
whether we "double tax" or not?
-- Tony P.
Gordon Sande
"tonyp" <to...@world.std.com> wrote:
>Subject: Re: Mankiw wrong on estate tax
>From: "tonyp" <to...@world.std.com>
>Date: Thu, 13 Nov 2003 10:58:33 -0500
>Newsgroups: sci.econ
>
>
>"Tim Worstall" <t...@2xtreme.net> wrote
>
>> Whatever you think the correct level of taxation of dividends or
>> corporate profits should be, it's difficult to argue that dividends
>> should be double taxed.
>
>
>Do you really mean "whatever"? Consider two cases:
>
>1) Corporate income tax 0%, personal dividend tax 40.5%
>2) Corporate income tax 30%, personal dividend tax 15%
Is the "personal dividend tax" rate the same as the "personal
income tax" rate? This discussion usually assumes that these
two rates are the same.
>In both cases, $1 of company profit becomes 59.5 cents of after-tax cash in the
>shareholder's pocket. To first order, what the hell difference does it make
>whether we "double tax" or not?
Technically correct but overly complicated and thus subject to subtrafuse
and abuse.
The discussion is not about total take but about the distortions due
to different takes on different modes of doing basically the same thing.
>-- Tony P.
>
>
xenman
>> I've never heard anyone argue that we should eliminate all taxes on
>> investment income.
>
>Hello??!! In the original Bush tax proposal, the plan was to entirely
>remove the tax on stock dividends.
It was to eliminate the double taxation of corporate profits
distributed as stock dividends, not to eliminate all the taxes.
There are two primary way to eliminate this double taxation, one at
the time the dividend is received, the other to make dividends
tax deductable at the corporate level.
Ok, you were wrong about stock dividends, please show the proposals
to eliminate taxes on interest income and capital gains income.
xenman
>> I've never heard anyone argue that we should eliminate all taxes on
>> investment income.
>
>Really? That's surprising.
>
We're all waiting for your evidence of a serious public policy
proposal to eliminate all taxes on investment income, including
dividends, capital gains, rent, and interest.
As long as we have an income tax in this country, most forms
of income, including investment income, should be taxed. While
there can be debate about how high (or low) the tax rates should
be, I've yet to see a serious policy proposal to eliminate taxes on
all investment income yet keeping income taxes on other sources
of income.
xenman
>Stanley and Danko say about 80% of their millionaires inherited their
>wealth. They explain where their data comes from. Where does your data
>come from?
>
I've read the book. I seem to recall that 80% did NOT inherit their
wealth.
sinister
No; double taxation in this sense is a fiction. Corporations are distinct
legal entities from their shareholders. (For example, if you sue a
corporation for damages, the shareholders liability is (in the examples I'm
thinking of) limited.)
If shareholders don't like being "taxed twice," they are always free to
reconstitute the company as a partnership.
> You are correct that the original plan would have removed the tax on
> stock dividends : but not the prior taxation of the company profits.
IIRC under the law as actually passed, some profits will *never* be taxed.
> This would have brought the US broadly into line with other countries
> : for example, in the UK,
> Only retained company profits are subject to corporation tax :
> distributed profits ( ie dividends ) are not taxed a thte company
> level : They are taxed as income for the people receiving them (
> although it is a touch more complicated, The company collects this
> income tax in the form of Advanced Corporation Tax ....but don't worry
> about that ).
>
> Whatever you think the correct level of taxation of dividends or
> corporate profits should be, it's difficult to argue that dividends
> should be double taxed.
Except that they're not, as noted above.
> Tim Worstall
sinister
Google agrees with you.
sinister
>
> >> I've never heard anyone argue that we should eliminate all taxes on
> >> investment income.
> >
> >Really? That's surprising.
> >
>
> We're all waiting for your evidence of a serious public policy
> proposal to eliminate all taxes on investment income, including
> dividends, capital gains, rent, and interest.
Nice weasel word: "serious".
OK:
http://cgi.usatoday.com/elect/ep/epr/eprg008.htm
"Forbes proposal would eliminate the deductions for mortgage interest and
charitable contributions to compensate for revenues lost under his 17
percent flat tax. He has risen in the polls on the strength of a blitz of
ads promoting his tax and attacking Senate Majority Leader Bob Dole, even
though critics say his plan would harm middle-class homeowners and benefit
the wealthy because it would eliminate taxes on investment income."
From http://www.cse.org/informed/issues_template.php/87.htm
"The flat tax would also eliminate punitive taxes like the capital gains
tax, dividend taxes, and interest taxes. Under existing tax law, interest
and dividend income are taxed at both the corporate and the individual
level, meaning investors are double-taxed. With the flat tax, however,
individuals who earn interest and dividend income would no longer be
required to pay taxes directly on this income. This would effectively end
the excessive double taxation of investment income."
Of course, I'm sure you'll argue that this doesn't eliminate taxes on e.g.
dividends, because they're already taxed once at the corporate level.
ro...@telus.net
wrote:
>>> I've never heard anyone argue that we should eliminate all taxes on
>>> investment income.
>>
>>Really? That's surprising.
>
>We're all waiting for your evidence of a serious public policy
>proposal to eliminate all taxes on investment income, including
>dividends, capital gains, rent, and interest.
That is pretty much exactly the Bush proposal (except for interest,
which is not all rent), and similar notions are routinely trumpeted as
necessary and good by right-wing "think" tanks. The idea is never to
tax the unearned incomes of the rich at all.
>As long as we have an income tax in this country, most forms
>of income, including investment income, should be taxed. While
>there can be debate about how high (or low) the tax rates should
>be, I've yet to see a serious policy proposal to eliminate taxes on
>all investment income yet keeping income taxes on other sources
>of income.
That is pretty much the whole direction of the tax system since WW II,
as proved by the fact that the true effective rate of tax -- ie., the
rate of tax _actually_paid_ -- on unearned income is now far lower
than that paid on labor income of the same level.
-- Roy L
Rue The Day
> You forget : company profits are already taxed at the company level.
> They are then taxed again if they are paid out as dividends : in the
> form of taxes on dividend income. So they are double taxed.
> You are correct that the original plan would have removed the tax on
> stock dividends : but not the prior taxation of the company profits.
> This would have brought the US broadly into line with other countries
> : for example, in the UK,
> Only retained company profits are subject to corporation tax :
> distributed profits ( ie dividends ) are not taxed a thte company
> level : They are taxed as income for the people receiving them (
> although it is a touch more complicated, The company collects this
> income tax in the form of Advanced Corporation Tax ....but don't worry
> about that ).
>
> Whatever you think the correct level of taxation of dividends or
> corporate profits should be, it's difficult to argue that dividends
> should be double taxed.
There is no double taxation because corporations and individual
shareholders are two separate legal entities.
xenman
wrote:
>"susupply" <susu...@mindspring.com> wrote in message news:<evxsb.25890$9M3....@newsread2.news.atl.earthlink.net>...
>> "Rue The Day" <ruet...@outgun.com>
>>
>> admitting he began with a red herring,
>>
>> wrote in message news:a44a8c58.03111...@posting.google.com...
>>
>> > That's right. I clearly stated that I was just providing some
>> > background information for my argument at that point and not yet
>> > directly addressing Mankiw's position.
>>
>> Why would you do that in a thread titled, "Mankiw wrong on estate tax"? A
>> title you created.
>
>I was being thorough. You should try it some time.
>
>> > Quite possibly the most ludicrous thing I have ever read. Let's add a
>> > third character to this story - a taxi driver who is not a millionaire
>> > and has to work in order to feed his family. Should he not have to
>> > pay taxes either in this hypothetical example?
>>
>> He probably doesn't pay income taxes (federal, that is).
>
>Sure he does. A full-time taxi driver in any major American city can
>easily make $40k/year. And if he's married, it's likely that his wife
>works too, so they're almost certainly paying federal income tax. And
>without any doubt, they are paying FICA tax. It's a very fashionable
>lie amongst the neoconservative unintelligentsia these days that the
>poor and working classes do not pay taxes, but it is a lie
>nonetheless.
>
What they say is they don't pay federal income taxes. The federal tax
rates for low and low-middle income people has dramatically dropped
in the past few years. It is deceitful to take this argument and set
up the straw man of "they don't pay any taxes" just so that it can be
knocked down. The poor pay taxes, as they should. If they work they
pay FICA and Medicare taxes, as they should since they will collect
benefits in the future (if they work and live long enough). There are
a variety of state and local taxes they also pay, both direct and
indirect. And to tell the whole story about federal taxes, all
federal taxes should be included.
ro...@telus.net
wrote:
>>> I've never heard anyone argue that we should eliminate all taxes on
>>> investment income.
>>
>>Hello??!! In the original Bush tax proposal, the plan was to entirely
>>remove the tax on stock dividends.
>
>It was to eliminate the double taxation of corporate profits
>distributed as stock dividends,
The claim that this is "double taxation" is just a lie. See below.
> not to eliminate all the taxes.
No, the effect would have been to eliminate all the taxes. If they
can pay untaxed dividends, it is easy for companies to arrange to
never have any taxable profits. They have no reason to make profits
except insofar as they benefit shareholders, and if the shareholders
can get untaxed dividend income, they will have no reason to care
about profits.
You seem to be very far from understanding (or at any rate, being
willing to acknowledge) the underlying economics of the situation.
>There are two primary way to eliminate this double taxation, one at
>the time the dividend is received, the other to make dividends
>tax deductable at the corporate level.
The claim that taxing both corporate profits and personal dividend
income is "double taxation" is just a flat, outright lie. But even
after I have refuted this lie many times, lying liars still repeat it.
Corporate profits and personal dividend income are two entirely
different income streams, received by two entirely different entities,
for two entirely different reasons. To claim it is "the same income"
is jus a flat, outright lie. You could with equal "logic" claim that
my income and the income a mechanic makes when he fixes my car are
"the same income."
>Ok, you were wrong about stock dividends,
No, he was completely correct, and you are a lying liar.
>please show the proposals
>to eliminate taxes on interest income and capital gains income.
There is _already_ no tax on capital gains, as long as you don't
realize them. Under the Bush proposal, you could buy land or stocks
or whatever, and pass them on to your children, grandchildren and
great-great-grandchildren, and even though the asset might increase to
be worth billions, _none_ of them would _ever_ have to pay _any_ tax
on the gains, as long as they didn't sell the assets. That is the
whole idea: that the rich become arbitrarily richer for doing nothing,
never pay any tax on their accumulations, and never have to sell any
of their assets.
-- Roy L
xenman
That's how you do it. In the state where I live, the primary tax
source is a sales tax. There is no state income tax. Food is not
taxed. Prescription drugs are not taxed. Housing rent is not taxed.
Public transportation is not taxed, just the opposite, it is subsidized
by tax revenues. This means that the bulk of the expenditures of the
poor are not taxed when consumed and some expenditures are
subsidized. Sure there are indirect taxes, such as property tax if
they rent from a private landlord and other business taxes.
The interesting thing about this tax system is that it is more stable
than one based soley on an income tax and no sales tax like
a neighboring state.
ro...@telus.net
>ruet...@outgun.com (Rue The Day) wrote in message news:<a44a8c58.03111...@posting.google.com>...
>> xenman <xen...@sprynet.nospaam.com> wrote in message news:<83l5rvgobh7fhelb2...@4ax.com>...
>> > On 11 Nov 2003 18:47:39 -0800, ruet...@outgun.com (Rue The Day)
>> > wrote:
>> >
>> > >"sinister" <sini...@nospam.invalid> wrote in message news:<wwdsb.40192$p9.1...@nwrddc02.gnilink.net>...
>> > >> "xenman" <xen...@sprynet.nospaam.com> wrote in message
>> > >> > Why you choose to ignore this obvous result is beyond my
>> > >> > comprehension.
>> > >>
>> > >> No, what's truly beyond comprehension is your ignoring of the fact that
>> > >> taxes have to be raised *somehow*. If we eliminate the estate tax, then we
>> > >> have to raise the taxes from somewhere else.
>> > >
>> > >That's right. Personally, I'd like to see all taxes replaced with a
>> > >land tax. But in the meantime, eliminating estate and investment
>> > >taxes mean that the entire burden falls on workers while those who
>> > >inherited vast sums of money and live off of the interest don't pay a
>> > >dime. It boggles the mind how anyone can argue that would be fair.
>> >
>> > I've never heard anyone argue that we should eliminate all taxes on
>> > investment income.
>>
>> Hello??!! In the original Bush tax proposal, the plan was to entirely
>> remove the tax on stock dividends.
>
>You forget : company profits are already taxed at the company level.
>They are then taxed again if they are paid out as dividends :
??? No, they aren't. Dividends are not income for the company, and
are not taxed except as income for the recipient. What on earth do
you imagine you think you might be talking about?
> in the
>form of taxes on dividend income. So they are double taxed.
That is just a flat, outright lie. Unfortunately, like similar
supernatural evils in teen slasher movies, the evil "double taxation"
lie just keeps coming back, no matter how many times it is killed.
Corporate profits and personal dividend income are two entirely
different income streams, received by two entirely different entities,
for two entirely different reasons. To claim it is "the same income"
is just a flat, outright lie. You could with equal "logic" claim that
my income and the income a mechanic makes when he fixes my car are
"the same income."
>You are correct that the original plan would have removed the tax on
>stock dividends : but not the prior taxation of the company profits.
Actually, it would have effectively removed the tax on corporate
profits, as corporations would have no reason to make any profits if
they could just give their shareholders untaxed dividends.
>This would have brought the US broadly into line with other countries
>: for example, in the UK,
>Only retained company profits are subject to corporation tax :
>distributed profits ( ie dividends ) are not taxed a thte company
>level : They are taxed as income for the people receiving them (
>although it is a touch more complicated, The company collects this
>income tax in the form of Advanced Corporation Tax ....but don't worry
>about that ).
Expensing dividends at least makes some sense: it is consistent with
the fact that the company is paying the shareholder a separate income
in his capacity as capitalist. But that is not what the Bush proposal
would do. Not even close.
>Whatever you think the correct level of taxation of dividends or
>corporate profits should be, it's difficult to argue that dividends
>should be double taxed.
They aren't. And the Bush proposal is not to single tax them, either.
-- Roy L
xenman
>> >gains tax. Then the net effect on capital, to first order, is zero.
>> >
>>
>> Actually, that is what will happend in 2010, according to my
>> tax accountant, except probably not in the way that you envision.
>> Currently when an asset is passed to an heir by inheritance, the
>> cost basis of the asset is reset to the value of the asset at the day
>> of death. Beginning in 2010, the cost basis will remain unchanged
>> when an asset is inherited.
>
>I know that that idea is being batted around. But I've also heard proposals
>to leave in place the current situation (reseting the cost basis).
>
>But
>(a) the heir pays no tax, change in basis or no, until she sells it;
>(b) you don't provide any evidence that this will make up for the loss in
>tax revenue due to repealing the estate tax.
>
Whether or not it is revenue neutral is not relevant. The primary issue
about removing the estate tax and replacing it with a capital gains
tax is fairness. The estate tax, as it has been implimented, is considered
unfair because it ignores whether or not taxes have already been
paid on the development of the wealth. That's the primary issue. A
secondary one deals with the ability to pass on a business to an
heir. I shouldn't have to explain that argument.
I get quite tired of the tired old argument "He's rich, he's dead, lets
take it".
sinister
Yes, but *why* do they say it? They say it because most of the burden on
those people is in the form of payroll taxes, not income taxes.
> rates for low and low-middle income people has dramatically dropped
> in the past few years. It is deceitful to take this argument and set
> up the straw man of "they don't pay any taxes" just so that it can be
> knocked down. The poor pay taxes, as they should. If they work they
> pay FICA and Medicare taxes, as they should since they will collect
> benefits in the future (if they work and live long enough). There are
*since they will collect benefits in the future*
But many conservatives insinuate that the federal government will have to
default on Treasury bonds held by e.g. the Social Security trust fund when
the fund starts paying out more than it takes in (circa 2016). In fairness,
your argument here doesn't imply that, but many conservatives do, e.g. when
they say the fund is in trouble circa 2016.
sinister
But then the question is: what does the picture look like when you scale
this up to the US as a whole?
sinister
> >> >Suppose you replace the estate tax with a slight increase in the
capital
> >> >gains tax. Then the net effect on capital, to first order, is zero.
> >> >
> >>
> >> Actually, that is what will happend in 2010, according to my
> >> tax accountant, except probably not in the way that you envision.
> >> Currently when an asset is passed to an heir by inheritance, the
> >> cost basis of the asset is reset to the value of the asset at the day
> >> of death. Beginning in 2010, the cost basis will remain unchanged
> >> when an asset is inherited.
> >
> >I know that that idea is being batted around. But I've also heard
proposals
> >to leave in place the current situation (reseting the cost basis).
> >
> >But
> >(a) the heir pays no tax, change in basis or no, until she sells it;
> >(b) you don't provide any evidence that this will make up for the loss in
> >tax revenue due to repealing the estate tax.
> >
>
> Whether or not it is revenue neutral is not relevant. The primary issue
That's strange. Then why don't we just eliminate all taxes?
> about removing the estate tax and replacing it with a capital gains
> tax is fairness. The estate tax, as it has been implimented, is
considered
> unfair because it ignores whether or not taxes have already been
> paid on the development of the wealth. That's the primary issue. A
What taxes would those be?
For example, suppose someone buys a plot of land in the middle of a city and
does nothing to improve it. He pays property tax over the years, though
likely far less than the economic rent latent in the property. Then he
dies. Where's the prior taxation? (I'm speaking of the cases where
property tax on land value are low, as they often are.)
> secondary one deals with the ability to pass on a business to an
> heir. I shouldn't have to explain that argument.
But the double taxation issue is a ruse. If I pay the income tax, then
spend money on items bearing the sales tax, I'm also "taxed twice" in the
same general sense.
The only possible legitimate argument against the estate tax is the
possibility it's distortionary. In terms of fairness, nothing could be
fairer---there's nothing fair or meritocratic about people possessing wealth
just because they inherit it. Of course, doing too much to prevent
inheritance would collide with widely held values about family structure,
but a reasonable compromise is to not tax estates unless they're worth quite
a bit. Which is what the law provides.
> I get quite tired of the tired old argument "He's rich, he's dead, lets
> take it".
Better than "he's alive, he's sweating his *** off, let's take it in"?
Jim Blair
>
>
>Jim Blair <s...@sig.com> mis-wrote in message
>> Stanley and Danko say about 80% of their millionaires inherited their
>> wealth. They explain where their data comes from. Where does your data
>> come from?
>
>
>inherited their wealth. Or are you arguing the semantic point that
>80% is not "most"?
Hi,
Sorry I missed a "did not" :-( Only 20% inherited and 80% were the first
in their family to be "rich"..
,,,,,,,
_______________ooo___(_O O_)___ooo_______________
(_)
jim blair (jeb...@facstaff.wisc.edu) Madison Wisconsin
USA. This message was brought to you using biodegradable
binary bits, and 100% recycled bandwidth. For a good time
call: http://www.geocities.com/capitolhill/4834
Jim Blair
Hi,
Corrrect. I screwed up :-(
Jim Blair
>> >logical to conclude that the estate tax does not reduce the total
>> >capital stock of the nation, it merely results in a different
>> >distribution of it.
>
>> Hi,
>>
>> It redistributes wealth from those who have it (and know they have it),
>> to the lawyers and estate planners who help them avoid the estate tax for
>> a fee.
>
>If, as someone else mentioned, you replace the estate tax with an
>unexcludable income tax on the heir, that problem goes away.
>
Hi,
But do you think the estate planners and tax lawyers and their politician
friends would ever permit that?
ro...@telus.net
wrote:
>>> >Suppose you replace the estate tax with a slight increase in the capital
>>> >gains tax. Then the net effect on capital, to first order, is zero.
>>>
>>> Actually, that is what will happend in 2010, according to my
>>> tax accountant, except probably not in the way that you envision.
>>> Currently when an asset is passed to an heir by inheritance, the
>>> cost basis of the asset is reset to the value of the asset at the day
>>> of death. Beginning in 2010, the cost basis will remain unchanged
>>> when an asset is inherited.
>>
>>I know that that idea is being batted around. But I've also heard proposals
>>to leave in place the current situation (reseting the cost basis).
>>
>>But
>>(a) the heir pays no tax, change in basis or no, until she sells it;
>>(b) you don't provide any evidence that this will make up for the loss in
>>tax revenue due to repealing the estate tax.
>
>Whether or not it is revenue neutral is not relevant.
?? What is a tax for, if not to raise revenue?
>The primary issue
>about removing the estate tax and replacing it with a capital gains
>tax is fairness.
Fairness and economic efficiency should have about equal weight, IMO.
>The estate tax, as it has been implimented, is considered
>unfair because it ignores whether or not taxes have already been
>paid on the development of the wealth.
That's not the main reason it could be unfair.
>That's the primary issue. A
>secondary one deals with the ability to pass on a business to an
>heir. I shouldn't have to explain that argument.
Right. Because it's equally spurious.
>I get quite tired of the tired old argument "He's rich, he's dead, lets
>take it".
?? Oddly enough, I've never heard that argument, nor anything very
close to it.
You no doubt prefer the current paradigm: "He's alive, he's poor but
producing wealth as best he can, let's take it."
-- Roy L
Les Cargill
The only way I see is to somehow enact a flat, at the transaction
tax, then somehow provide a means of deduction against the tax.
Very intrusive, and not very satisfactory overall.
--
Les Cargill
Les Cargill
>
<snip>
>
> You forget : company profits are already taxed at the company level.
> They are then taxed again if they are paid out as dividends : in the
> form of taxes on dividend income. So they are double taxed.
> You are correct that the original plan would have removed the tax on
> stock dividends : but not the prior taxation of the company profits.
> This would have brought the US broadly into line with other countries
> : for example, in the UK,
> Only retained company profits are subject to corporation tax :
> distributed profits ( ie dividends ) are not taxed a thte company
> level : They are taxed as income for the people receiving them (
> although it is a touch more complicated, The company collects this
> income tax in the form of Advanced Corporation Tax ....but don't worry
> about that ).
>
> Whatever you think the correct level of taxation of dividends or
> corporate profits should be, it's difficult to argue that dividends
> should be double taxed.
>
> Tim Worstall
It might be that reinvestment of the money that would be dividends is
sufficiently to the good that it makes sense.
I'm not saying this is true, but that's the only scenario I can
come up with. Corporations were originally designed *to* pay
dividends, not as equity commodities.
--
Les Cargill
xenman
>
>"xenman" <xen...@sprynet.nospaam.com> wrote in message
>news:l2n7rvobk2bemhaec...@4ax.com...
>> >> >Suppose you replace the estate tax with a slight increase in the
>capital
>> >> >gains tax. Then the net effect on capital, to first order, is zero.
>> >> >
>> >>
>> >> Actually, that is what will happend in 2010, according to my
>> >> tax accountant, except probably not in the way that you envision.
>> >> Currently when an asset is passed to an heir by inheritance, the
>> >> cost basis of the asset is reset to the value of the asset at the day
>> >> of death. Beginning in 2010, the cost basis will remain unchanged
>> >> when an asset is inherited.
>> >
>> >I know that that idea is being batted around. But I've also heard
>proposals
>> >to leave in place the current situation (reseting the cost basis).
>> >
>> >But
>> >(a) the heir pays no tax, change in basis or no, until she sells it;
>> >(b) you don't provide any evidence that this will make up for the loss in
>> >tax revenue due to repealing the estate tax.
>> >
>>
>> Whether or not it is revenue neutral is not relevant. The primary issue
>
>That's strange. Then why don't we just eliminate all taxes?
>
Now you're being just plain silly.
>> about removing the estate tax and replacing it with a capital gains
>> tax is fairness. The estate tax, as it has been implimented, is considered
>> unfair because it ignores whether or not taxes have already been
>> paid on the development of the wealth. That's the primary issue. A
>
>What taxes would those be?
Primarily income taxes. Suppose you have someone that recently died
with an estate of $2M. Let's further suppose that all this $2M is 100%
invested in interest bearing money market accounts, they have no
latent captial gains, and none of it was inherited. This means that
income taxes have all been paid on the development/generation of
this wealth.
Now that this person has expired, the estate will have to pay estate taxes
on $1M. ($1M is the current exclusion amount in 2003.) In this case
taxes will be paid twice, once when the income was earned and once
again when the estate tax is paid.
>
>For example, suppose someone buys a plot of land in the middle of a city and
>does nothing to improve it. He pays property tax over the years, though
>likely far less than the economic rent latent in the property. Then he
>dies. Where's the prior taxation? (I'm speaking of the cases where
>property tax on land value are low, as they often are.)
>
>> secondary one deals with the ability to pass on a business to an
>> heir. I shouldn't have to explain that argument.
>
>But the double taxation issue is a ruse. If I pay the income tax, then
>spend money on items bearing the sales tax, I'm also "taxed twice" in the
>same general sense.
>
>The only possible legitimate argument against the estate tax is the
>possibility it's distortionary. In terms of fairness, nothing could be
>fairer---there's nothing fair or meritocratic about people possessing wealth
>just because they inherit it. Of course, doing too much to prevent
>inheritance would collide with widely held values about family structure,
>but a reasonable compromise is to not tax estates unless they're worth quite
>a bit. Which is what the law provides.
>
Double taxation is not a ruse. It is real. Have you been involved with
settling an estate. I have. My father died a year ago. I know what's
involved. The only reason I see for the current estate tax system is
simple meanness.
Now if there was an estate tax system whose principle was to recover
the social security and medicare benefits paid out, then I would
support it.
xenman
Well one advantage is that you will start to tax the underground
economy. It would also be more stable than the current system.
Consumptions taxes are less reflective of the business cycle than
income taxes.
Rue The Day
No, I have specifically heard several right-wing pundits say on TV and
radio that the poor do not pay taxes. They may have meant to say
"federal income tax" but they said "tax." Perhaps it was an
oversight, but I have a hunch it was intentional deception.
> The federal tax
> rates for low and low-middle income people has dramatically dropped
> in the past few years. It is deceitful to take this argument and set
> up the straw man of "they don't pay any taxes" just so that it can be
> knocked down. The poor pay taxes, as they should. If they work they
> pay FICA and Medicare taxes, as they should since they will collect
> benefits in the future (if they work and live long enough). There are
> a variety of state and local taxes they also pay, both direct and
> indirect. And to tell the whole story about federal taxes, all
> federal taxes should be included.
To tell the REAL whole story, ALL taxes should be included, not just
federal taxes. When you include FICA, state income tax, sales tax,
excise taxes, and property taxes (assuming they own a house), the
working poor bear a significant tax burden.
Rue The Day
The problem with that approach is that if you exempt all manner of
"necessities" from the consumption tax, then by necessity the tax on
everything else must be extremely high. Replacing income taxes with
consumption taxes is just a dead end no matter how you look at it.
xenman
>> >
>> >Sure he does. A full-time taxi driver in any major American city can
>> >easily make $40k/year. And if he's married, it's likely that his wife
>> >works too, so they're almost certainly paying federal income tax. And
>> >without any doubt, they are paying FICA tax. It's a very fashionable
>> >lie amongst the neoconservative unintelligentsia these days that the
>> >poor and working classes do not pay taxes, but it is a lie
>> >nonetheless.
>> >
>>
>> What they say is they don't pay federal income taxes. The federal tax
>
>Yes, but *why* do they say it? They say it because most of the burden on
>those people is in the form of payroll taxes, not income taxes.
>
They don't say it or imply it. Most workers in the U.S. pay more in
Social Security taxes, there is not such tax called a Payroll Tax, and
Medicare taxes than they pay in Federal Income taxes. This tells you
something about these three taxes.
>> rates for low and low-middle income people has dramatically dropped
>> in the past few years. It is deceitful to take this argument and set
>> up the straw man of "they don't pay any taxes" just so that it can be
>> knocked down. The poor pay taxes, as they should. If they work they
>> pay FICA and Medicare taxes, as they should since they will collect
>> benefits in the future (if they work and live long enough). There are
>
>*since they will collect benefits in the future*
>
>But many conservatives insinuate that the federal government will have to
>default on Treasury bonds held by e.g. the Social Security trust fund when
>the fund starts paying out more than it takes in (circa 2016). In fairness,
>your argument here doesn't imply that, but many conservatives do, e.g. when
>they say the fund is in trouble circa 2016.
>
>> a variety of state and local taxes they also pay, both direct and
>> indirect. And to tell the whole story about federal taxes, all
>> federal taxes should be included.
>
You're setting up straw men again. Come 2016 SS benefits will exceed SS
taxes. This means that the general taxes will have to start paying back the
SS bonds that was spent, meaning either higher taxes or reduced benefits
in other programs. The SS surplus was poorly handled by the federal
government, but that's a different issue. SS is in a real mess come 2034.
xenman
>xenman <xen...@sprynet.nospaam.com> wrote in message news:<uv43rvg05g3eq7hva...@4ax.com>...
>> On 11 Nov 2003 14:29:58 -0800, ruet...@outgun.com (Rue The Day)
>> wrote:
>>
>> >xenman <xen...@sprynet.nospaam.com> wrote in message news:<29a2rvshq0fmhmppt...@4ax.com>...
>> >> The problem with your analysis is the cash used to buy the
>> >> factory came from some kind of investment that had to be sold.
>> >
>> >To someone else. Which means it still exists.
>> >
>>
>> Yes it does. Which is why I pointed it out.
>>
>> >> Likewise, the seller of the factory would in turn invest all the cash
>> >> if there were not taxes.
>> >
>> >That's an assumption. He might well have spent some of it.
>> >Meanwhile, the government, might use it to fund investment in
>> >infrastructure.
>> >
>>
>> He may have spent some of it, but if the government takes it
>> in the form of taxes, it can't be either spent or invested. Since
>> government spending/investiing in infrastructure is decreasing
>> and spending on entitlements is increasing, you scenario is
>> unlikely.
>>
>> >>What you have here is a net loss of
>> >> capital, liquid and non-liquid, that ends up being estate taxes.
>> >
>> >Incorrect. Cash is not capital.
>> >
>>
>> Yes it is. No one puts cash in a hole in the ground. They invest
>> it, which means it is capital.
>>
>> >> Why you choose to ignore this obvous result is beyond my
>> >> comprehension.
>> >
>> >Because the assumption is wrong.
>>
>> It's really simple, assets were invested at X dollars before the
>> taxes and there are X minus T dollars invested after the tax.
>> This ain't rocket science.
>
>Two problems with that analysis - 1. The tangible assets are still
>there, just with a value of X-T. 2. The tax payments didn't just fall
>off the face of the earth. The government either spent or invested
>them, the person/entity that received them from the government either
>spent or invested them and so on down the line.
Ahhh.. A light just came on. You think that capital/money/assets in the
hands of government is equivalent to being in private hands. That's
where we differ. I've worked for government. I'ver worked in office
buildings that had a mixture of government and private enterprises.
It is my opinion that money in the hands of the private sector will
be invested better than if it were in the public sector. I am not saying
that there should be no taxes or no government "investment" spending,
just that it needs to be limited.
xenman
In that case the subject is income taxes, not other federal taxes.
Tim Worstall
> "Tim Worstall" <t...@2xtreme.net> wrote in message
> news:825e2890.03111...@posting.google.com...
> > dez...@usa.net (Dez Akin) wrote in message
> news:<dd43b4da.03111...@posting.google.com>...
> > > t...@2xtreme.net (Tim Worstall) wrote in message
> news:<825e2890.03111...@posting.google.com>...
> > > >
> > > >
> > > > 1) Capital stock is unchanged, yes. But the number of people with
> > > > large amounts of capital ( ie those children who have to pay the tax )
> > > > is reduced. As Gilder argues in " Wealth and Poverty " it is just
> > > > those rich , with an excess of capital over and above anything they
> > > > need for consumption purposes, either now or in the future, who
> > > > provide most of the venture capital. A reduction in the number of
> > > > people willing or able to undertake that form of investing could
> > > > indeed reduce future total wealth. Or could at least.
> > >
> > > But there is the rise of VC funds that individuals can contribute to
> > > as part of a retirement package. Perhaps they're smaller and more
> > > conservative than tradictional VC. How much does VC, given its
> > > enourmous failure rate, contribute to the economy? What kind of
> > > ventures are good for the economy that individuals will take a risk on
> > > that corporations wont?
> >
> > Individuals have both faster decisions making processes, and are
> > willing to look at much smaller operations. $ 50,000 - $ 500,000 will
> > start many types of small business. One cannot get that sort of
> > capital from any institutional arrangement. ( I write as one whose
> > business life has been concentrated in this size of business ).
>
> Well, you're wrong. I have a friend who's about $80,000 in debt, most of it
> credit card debt, run up trying to start a small business.
And that isn't equity is it ? That's a loan : and presumably he has
some form of collateral against such a credit card debt, which is
where the real equity is.
>
> > >
> > > > 2) I think your second point ignores certain human reactions. People
> > > > want to provide for their children. What some have called the "
> > > > cascade of wealth down the generations " . An estate tax will change
> > > > people's willingness to save for this purpose, and thus could reduce
> > > > capital formation across the economy.
> > > > Another way of putting this is that I don't think the simple
> > > > formulations of the lifetime savings model are correct : Many desire
> > > > to leave capital, and thus choices, to children and grandchildren.
> > >
> > > I suspect that if the estate tax is below 60% people will save
> > > anyways. Its still a sizable chunk of change you are passing on
> > > towards your heirs.
> > >
> > > > How important either of these two are I don't know. But I think it an
> > > > error to dismiss both of them as being non existent.
> > >
> > > I mostly agree. I'm slightly revolted by born privlage, and I think
> > > that these points are largely less important than estate tax
> > > detractors, but certainly a factor.
> > >
> > > My opinion on the estate tax is to eliminate it because its
> > > complicated, and just replace it with income tax. When you inherit
> > > something it wasn't yours before, and it is yours now, so income. What
> > > income tax structure you want is a different debate. With the current
> > > estate tax or a total estate tax, the very rich who wish to finance
> > > their heirs will likely just make them employees and siphon off large
> > > chunks of the estate, form living trusts, or other legal shortcuts.
> >
> > I agree that the current estate tax in the US, and inheritance tax in
> > the UK, don't actually acheive what they are setting out to do:both
> > raise tax revenue (there is ample evidence in the UK that collection
> > costs are near revenue collected ) and reduce born privilege for
> > social reasons. The latter simply isn't working becasue there are too
> > many other ways to pass on the loot. The truly rich are not affected
> > by it. In the UK for example, it's the middle classes with a house in
> > an expensive area : the tax kicks in at 250,000 pounds, the price of a
> > three bedroomed in much of London.
> >
> > I would rather move to an expenditure tax system. All savings are tax
> > free until spent on consumption :at which point they pay taxes, which
> > can be progressive if one wishes. All money form income put into
> > savigs is similarly tax free.
>
> Pretty convenient for the rich, who spend much less on consumption than
> anyone else. Does nothing to reduce rent collection, either.
>
> And how do you define "consumption"? Suppose Rupert Murdoch buys up radio
> stations with the aim of garnering political influence. Is that an
> "investment"?
An expenditure tax is not the same as a consumption tax.
And Murdoch, whatever yuor opinion of him, does not buy radio stations
out of personal income. Company taxation would not be altered by a
move to an expenditure tax.
Tim Worstall
>
> > Tim Worstall
Tim Worstall
> > free until spent on consumption :at which point they pay taxes, which
> > can be progressive if one wishes. All money form income put into
> > savigs is similarly tax free.
> >
>
>
> How does one enact a progressive consumption tax? I suppose exempting
> necessities and taxing luxuries at a higher rate than other goods
> could be considered progressive if you really stretch the definition
> of the term "progressive", but I still don't see it.
An expenditure tax is not the same as a consumption tax. We're still
going to be working through the 1040 that everyone files at the end of
the year. There will still be payroll deductions ( although I am
rather in favour of the idea that these should not exist.Citizens
should feel the actual pain of having to write a cheque for what they
send to the Govt,not just see what is left over. But that's another
matter ).
At the end of the year, income was $ 40,000 say. I put $ 5,000 of that
into savings ( pretty much anything that is savings, from deposit
account to pension fund ). So my expenditure in that year was $
35,000, and upon that the Govt will apply whatever expenditure tax
rate it feels necessary : progressive, regressive,flat, whatever.
Next year, I make the same $ 40,000, but take out that $ 5,000 in
savings and spend it ( new expensive girlfriend for example ). My
expenditure in year 2 has been $ 45,000 and so I get taxed on $
45,000.
All interest, capital gains and so on on my savings remain untaxed. If
my % 5,000 has become $ 50,000 through clever investment in IPO's,
then I only pay tax when I take that money out of savings and spend it
: If I leave it saved( not necessarily in a particular stock : just in
any form of savings) it attracts no taxation.
If you wish, youcan still hit the rich : make the no tax on savings
profits exist, but with a high exemption : $ 500,000 say. But this
isn't really necessary.
Becasue when you talk about the " rich " you need to distinguish
between two groups. Those with high incomes and those who are living
off previously accumulated wealth. We want those on high incomes to be
saving, for this is where much of the growth of available investment
capital comes from : and the US sure could use a boost to it's savings
rate. Those who live off accumulated wealth, ie those drawing down on
savings, they get hit with the expenditure tax just like anyone else
drawing down savings.
What such a taxation system is trying to do is to remove the taxation
bias of many forms of savings : captial gains taxes definately change
behaviour in the stock market,for example. It also removes the double,
sometimes triple taxation on certain forms of savings: if I save from
income to buy stocks, under the current system I have paid incometax.
Then the company pays tax on the profits made, and then I pay tax
again on the dividends. Whatever you may think about the rights and
wrongs of taxing the " capitalist oppressors " there is no doubt that
such taxation is economically disruptive.
The whole idea was much more popular back in the 80 's and early 90
's. It grew out of the experiences of the late 60's and 70's, when the
repeated taxation of investment and savings profits, allied with
inflation and no form of inflation indexing for such taxation meant
that returns to invested capital were almost certain to be negative in
real terms after tax.
Tim Worstall
sinister
>
> >> >
> >> >Sure he does. A full-time taxi driver in any major American city can
> >> >easily make $40k/year. And if he's married, it's likely that his wife
> >> >works too, so they're almost certainly paying federal income tax. And
> >> >without any doubt, they are paying FICA tax. It's a very fashionable
> >> >lie amongst the neoconservative unintelligentsia these days that the
> >> >poor and working classes do not pay taxes, but it is a lie
> >> >nonetheless.
> >> >
> >>
> >> What they say is they don't pay federal income taxes. The federal tax
> >
> >Yes, but *why* do they say it? They say it because most of the burden on
> >those people is in the form of payroll taxes, not income taxes.
> >
>
> They don't say it or imply it. Most workers in the U.S. pay more in
> Social Security taxes,
Right.
> there is not such tax called a Payroll Tax, and
You or someone else has said this before. I don't know why you persist in
this blatant lie.
Look at what I typed. I didn't say "*the* *P*ayroll *T*ax." I referred to
"*p*ayroll *t*axes," which anyone will tell you is a particular *class* of
tax.
> Medicare taxes than they pay in Federal Income taxes. This tells you
> something about these three taxes.
What does it tell you?
> >> rates for low and low-middle income people has dramatically dropped
> >> in the past few years. It is deceitful to take this argument and set
> >> up the straw man of "they don't pay any taxes" just so that it can be
> >> knocked down. The poor pay taxes, as they should. If they work they
> >> pay FICA and Medicare taxes, as they should since they will collect
> >> benefits in the future (if they work and live long enough). There are
> >
> >*since they will collect benefits in the future*
> >
> >But many conservatives insinuate that the federal government will have to
> >default on Treasury bonds held by e.g. the Social Security trust fund
when
> >the fund starts paying out more than it takes in (circa 2016). In
fairness,
> >your argument here doesn't imply that, but many conservatives do, e.g.
when
> >they say the fund is in trouble circa 2016.
> >
> >> a variety of state and local taxes they also pay, both direct and
> >> indirect. And to tell the whole story about federal taxes, all
> >> federal taxes should be included.
> >
>
> You're setting up straw men again.
I'm not setting up any strawmen. Are you denying my claim that many
conservatives think the fund will be in trouble circa 2016?
Just because *you* don't think so (quite reasonably), doesn't mean other
people don't think so.
sinister
"Rue The Day" <ruet...@outgun.com> wrote in message
No hunch. I'm sure there was a carefully planned campaign, probably
conducted from RNC headquarters, to get out the word that everyone is to say
the poor don't pay federal taxes, and to occasionally remain nominally
truthful by inserting the word "income" before taxes.
>
> > The federal tax
> > rates for low and low-middle income people has dramatically dropped
> > in the past few years. It is deceitful to take this argument and set
> > up the straw man of "they don't pay any taxes" just so that it can be
> > knocked down. The poor pay taxes, as they should. If they work they
> > pay FICA and Medicare taxes, as they should since they will collect
> > benefits in the future (if they work and live long enough). There are
> > a variety of state and local taxes they also pay, both direct and
> > indirect. And to tell the whole story about federal taxes, all
> > federal taxes should be included.
>
> To tell the REAL whole story, ALL taxes should be included, not just
> federal taxes. When you include FICA, state income tax, sales tax,
> excise taxes, and property taxes (assuming they own a house), the
> working poor bear a significant tax burden.
Not to mention the economic rent that the government forces them to hand
over to their landlords, when it could go instead to lowering their tax
bill. But you already knew that.
sinister
You miss his point. His point is that they're deliberately *obfuscating*
the subject, in which case the subject *does* include these other taxes.
sinister
Just as taxes are paid twice when I go buy a candy bar, first when I earned
the money from the sweat of my brow, and second when I buy the candy bar.
Come to think of it, since social security taxes aren't deductible (I won't
use the phrase "payroll tax," as you appear to come from some odd corner of
the world where that phrase has no meaning), it's been taxed three times.
>
> >
> >For example, suppose someone buys a plot of land in the middle of a city
and
> >does nothing to improve it. He pays property tax over the years, though
> >likely far less than the economic rent latent in the property. Then he
> >dies. Where's the prior taxation? (I'm speaking of the cases where
> >property tax on land value are low, as they often are.)
> >
> >> secondary one deals with the ability to pass on a business to an
> >> heir. I shouldn't have to explain that argument.
> >
> >But the double taxation issue is a ruse. If I pay the income tax, then
> >spend money on items bearing the sales tax, I'm also "taxed twice" in the
> >same general sense.
> >
> >The only possible legitimate argument against the estate tax is the
> >possibility it's distortionary. In terms of fairness, nothing could be
> >fairer---there's nothing fair or meritocratic about people possessing
wealth
> >just because they inherit it. Of course, doing too much to prevent
> >inheritance would collide with widely held values about family structure,
> >but a reasonable compromise is to not tax estates unless they're worth
quite
> >a bit. Which is what the law provides.
> >
>
> Double taxation is not a ruse. It is real. Have you been involved with
> settling an estate. I have. My father died a year ago. I know what's
> involved. The only reason I see for the current estate tax system is
> simple meanness.
What's mean about it? It couldn't have been mean to your father. It's mean
to you?
sinister
Why does it have to be equity?
And no, there's no collateral---it's *credit card debt*.
By the way, your argument here is very dangerous. You're claiming that
there's a good chance that capital markets will be unable to fund worthy
projects in the range you suggest unless we allow people to inherit large
sums. Implicitly, you're making an argument that there's a market failure.
OK with me, but doesn't seem to square with what appears to be your general
take on markets.
Quoting from above: "...until spent on consumption..."
If this differs much from a consumption tax, please provide details...
> And Murdoch, whatever yuor opinion of him, does not buy radio stations
> out of personal income. Company taxation would not be altered by a
> move to an expenditure tax.
My point exactly. When you're rich, you can consume (in this case, the
object of consumption is political power) by having the company do it for
you.
> Tim Worstall
> >
> > > Tim Worstall
sinister
>
> >> I've never heard anyone argue that we should eliminate all taxes on
> >> investment income.
> >
> >
>
> We're all waiting for your evidence of a serious public policy
> proposal to eliminate all taxes on investment income, including
> dividends, capital gains, rent, and interest.
How about today's NYT:
http://nytimes.com/2003/11/14/business/14savings.html [registration
required]
"Bush Is Said to Weigh Changes to the Tax Code
"By EDMUND L. ANDREWS
"Published: November 14, 2003
"WASHINGTON, Nov. 13 - Senior Bush administration officials said Thursday
that they were considering plans to simplify the tax code and to revive
earlier ideas for savings plans that would allow people to exclude almost
all their investment income from taxes.
"In a speech before the Tax Foundation, a policy group here that advocates
lower taxes, Treasury Secretary John W. Snow said his staff was preparing "a
number of proposals to simplify the tax code" and resurrected the idea of
"lifetime savings accounts" that would allow people to put aside large sums
of money and pay no tax on the investment income they receive.
"First proposed last February, but then made a low priority, the "lifetime
savings accounts" would allow a married couple to set aside up to $15,000 a
year and avoid any taxes on the dividends or stock profits that accumulate
as a result.
"The plans would also allow people to withdraw money for almost any purpose
and at almost any time; existing plans impose big tax penalties when people
withdraw money before they retire."
[rest of article snipped]
>
> As long as we have an income tax in this country, most forms
> of income, including investment income, should be taxed. While
> there can be debate about how high (or low) the tax rates should
> be, I've yet to see a serious policy proposal to eliminate taxes on
> all investment income yet keeping income taxes on other sources
> of income.
>
Rue The Day
Under this system, anyone who experiences a catastrophic event (such
as a medical emergency or a tornado destroying their house) and is
forced to withdraw a large sum from savings would get hit with an
enormous tax liability at a time when they can least afford it.
Furthermore, such a system would almost certainly encourage a form of
cheating whereby people would get off-books loans the day before
filing their savings statement with the tax authorities and then pay
the loan off the next day to make it look like they hadn't spent any
money. Enforcement would be a nightmare.
Rue The Day
How will you tax the underground economy? By definition, the
underground economy consists of activity not reported to the
government. So if that activity consists of work not reported to the
government the proceeds of which are used to legitimately buy goods,
you can recoup some of that (minus savings) activity with a
consumption tax. However, if the activity is the underground sale of
goods and service, then you lose that tax revenue. A consumption tax
would almost certainly shift underground activity towards the latter
scenario.
Rue The Day
Let's suppose that this person is still alive and their toilet gets
plugged up so they hire a plumber to fix it. They pay the plumber
$500. Should the plumber be taxed on that as income? After all, the
original holder of the money already paid income tax on it. Let's
suppose the person in question decides to buy a car and, being a
frugal sort, buys a used car. They will have to pay sales tax on the
car. Yet, someone else already paid sales tax on the car when it was
first purchased. Do you see a pattern here? Whenever there is a
transfer of money from one individual to another, a tax is collected.
If you're going to call dividend taxation and estate taxation "double
taxing", then in all fairness you should recognize triple and
quadruple taxing everywhere else in the economy.
Tim Worstall
> On 13 Nov 2003 06:20:19 -0800, t...@2xtreme.net (Tim Worstall) wrote:
>
> >ruet...@outgun.com (Rue The Day) wrote in message news:<a44a8c58.03111...@posting.google.com>...
> >> > On 11 Nov 2003 18:47:39 -0800, ruet...@outgun.com (Rue The Day)
> >> > wrote:
> >> >
> >> > >"sinister" <sini...@nospam.invalid> wrote in message news:<wwdsb.40192$p9.1...@nwrddc02.gnilink.net>...
> >> > >> > comprehension.
> >> > >>
> >> > >> taxes have to be raised *somehow*. If we eliminate the estate tax, then we
> >> > >> have to raise the taxes from somewhere else.
> >> > >
> >> > >That's right. Personally, I'd like to see all taxes replaced with a
> >> > >land tax. But in the meantime, eliminating estate and investment
> >> > >taxes mean that the entire burden falls on workers while those who
> >> > >inherited vast sums of money and live off of the interest don't pay a
> >> > >dime. It boggles the mind how anyone can argue that would be fair.
> >> >
> >> > I've never heard anyone argue that we should eliminate all taxes on
> >> > investment income.
> >>
> >> remove the tax on stock dividends.
> >
> >You forget : company profits are already taxed at the company level.
> >They are then taxed again if they are paid out as dividends :
>
> are not taxed except as income for the recipient. What on earth do
> you imagine you think you might be talking about?
Sigh.
Company makes a profit of $ 100. Company pays tax of $ 50 on that (
don't worry about the rates, just look at the example ).
Company reinvests $ 25 and pays $ 25 in dividends. Dividends are taxed
as income to the recipients.
Has that $ 100 of profits been subjected to two levels of taxation ?
No. Have the dividends ? Yes. They are double taxed.
The rest of the world does it differently.
Company makes $ 100. Decides to pay $ 25 dividends. So, the company
pays tax on $ 75 of retained profit. Pays corporation tax and
reinvests the remainder.
Individuals receive $ 25 in dividends and pay income tax on it. This
is single taxation of dividends.
Whatever you want to say about the corporation and the individual
being different legal entities , the above are quite clearly two
different situations. And have different economic effects.
( In the UK we actually use the company to collect base rate tax on
that $ 25 in dividends : easier for the Govt to get one big cheque.
Higher rate payers must declare and pay more tax on dividend income ).
Now, you can fix the various tax rates so that there is no difference
between the amount of tax collected in either scenario : but does
anyone actually think that govt is that clever ?
There are a number of pernicious effects from such taxation of
dividends : think about the difference in taxation of loan or bond
income for example : The company deducts interest before declaring
taxable income, so there is only one level of taxation on interest
payments. We have now skewed the investment climate in favour of
funding via loans rather than equity capital. Just what we need, even
greater gearing and fragility for corporations.
We have also raised the cost of equity capital to companies.
And we have reduced the incentive to save in equities rather than
bonds.
Pretty good for a taxation system you deny even exists Roy.
Of course the solution is even simpler than the Bush proposals.
Abolish all corporate profit taxation entirely. All corporate income
becomes income for someone else : for an individual in the end. Tax it
when it becomes personal income.
Tim Worstall
>
> > in the
> >form of taxes on dividend income. So they are double taxed.
>
> That is just a flat, outright lie. Unfortunately, like similar
> supernatural evils in teen slasher movies, the evil "double taxation"
> lie just keeps coming back, no matter how many times it is killed.
>
> Corporate profits and personal dividend income are two entirely
> different income streams, received by two entirely different entities,
> for two entirely different reasons. To claim it is "the same income"
> is just a flat, outright lie. You could with equal "logic" claim that
> my income and the income a mechanic makes when he fixes my car are
> "the same income."
>
> >You are correct that the original plan would have removed the tax on
> >stock dividends : but not the prior taxation of the company profits.
>
> Actually, it would have effectively removed the tax on corporate
> profits, as corporations would have no reason to make any profits if
> they could just give their shareholders untaxed dividends.
>
> >This would have brought the US broadly into line with other countries
> >: for example, in the UK,
> >Only retained company profits are subject to corporation tax :
> >distributed profits ( ie dividends ) are not taxed a thte company
> >level : They are taxed as income for the people receiving them (
> >although it is a touch more complicated, The company collects this
> >income tax in the form of Advanced Corporation Tax ....but don't worry
> >about that ).
>
> Expensing dividends at least makes some sense: it is consistent with
> the fact that the company is paying the shareholder a separate income
> in his capacity as capitalist. But that is not what the Bush proposal
> would do. Not even close.
>
> >Whatever you think the correct level of taxation of dividends or
> >corporate profits should be, it's difficult to argue that dividends
> >should be double taxed.
>
> They aren't. And the Bush proposal is not to single tax them, either.
>
> -- Roy L
Tim Worstall
> "Tim Worstall" <t...@2xtreme.net> wrote
>
> > corporate profits should be, it's difficult to argue that dividends
> > should be double taxed.
>
>
>
> 1) Corporate income tax 0%, personal dividend tax 40.5%
> 2) Corporate income tax 30%, personal dividend tax 15%
>
> In both cases, $1 of company profit becomes 59.5 cents of after-tax cash in the
> shareholder's pocket. To first order, what the hell difference does it make
> whether we "double tax" or not?
Well, not quite, because the corporation is going to retain some
profits for reinvestment.
But I would be prefectly happy with the first option. There should be
no corporate profit taxation. Let them decide to reinvest, or pay
dividends, or finance themselves by loan or equity, without the tax
system distorting this decision. For of course, all corporate income
becomes someone's income at some point,and can be taxed there at
whatever rate you want : just like other income.
As I recall, before the recent changes, it was corporation tax plus
the full income tax rate for dividends : so dividend income was
charged more tax than, say ,loan income.
Tim Worstall
>
> -- Tony P.
susupply
<ro...@telus.net>
the professional writer with idiosyncratic semantic tastes,
wrote in message news:3fb2c1e6...@news.telus.net...
> >> That's right. I clearly stated that I was just providing some
> >> background information for my argument at that point and not yet
> >> directly addressing Mankiw's position.
> >
> >Why would you do that in a thread titled, "Mankiw wrong on estate tax"?
A
> >title you created.
>
> Because unlike you, he understands that context is necessary to an
> honest and informative discussion (or do you habitually chop the
> context just _because_ you also understand that?).
The context would be Mankiw's actual argument, which Rue the Day just
admitted he ignored.
[snip]
> >> Either we tax income
> >> or we don't, and if we do, to suggest that wage income be taxed while
> >> investment income is not in the name of "fairness" is lunacy.
> >
> >Mankiw also didn't say that.
>
> Right. Mankiw carefully avoided identifying who should be taxed, and
> for what, in order to make up the foregone estate tax revenue --
> microscopic as it is.
Mankiw did not say investment income should not be taxed. Is our Canadian
friend confused about the definitions of wealth v. income?
[snip]
> >> Furthermore, Milton's example is just flat out wrong in that it fails
> >> to account for the fact that Spendthrift Sam is paying sales tax on
> >> goods he purchases, excise taxes on other goods, and property tax on
> >> real property that he purchases.
> >
> >Not to the federal government he isn't.
>
> Wrong. Many of his purchases will likely be taxed federally, and he
> will also be sharing some portion of the federal income tax burdens of
> many of the providers he buys his consumer goods and services from.
Excise taxes to the federal govt. are likely trivial. There is no federal
sales tax, nor federal real property tax. While Frugal Frank WILL pay taxes
to the federal government on his investment income...and contrary to the
ignorant ravings of roy, he will pay double taxes on certain kinds of
investment income (i.e. dividends).
[snip]
> >> Opportunity costs are largely irrelevant to this particular analysis.
> >> It's merely a transfer of an asset from one party to another. Much
> >> like what happens when the old man dies and transfers the asset to his
> >> son.
> >
> >You missed the point completely.
>
> No, it was the "point" that missed completely. The argument about
> opportunity cost is completely spurious, because it doesn't consider
> all aspects of the transactions.
180 degrees from the truth. He was missing an aspect in his analysis.
Which I provided.
>
> >If an heir does not have to sell the
> >family factory to satisfy estate taxes it will continue to exist.
>
> ?? And it would somehow be vaporized if he sells it to someone who is
> able to use it more productively?
Take a loot at the very next word I wrote:
> >AND,
which was followed by
> the
> >investor who would have purchased that factory will have to find another
> >investment opportunity for his money. Meaning he can invest in a new
> >factory, and the country will have two, rather than one factories.
>
> No. Both the heir and the prospective buyer want to make money, and
> so do their other potential competitors. If there is room in the
> market for another factory of that type, _someone_ will build it,
> estate tax or no.
Dumbkopf, the question is about capital formation. If the government takes
someone's capital away there is less of it.
> In any case, the heir will only sell if the buyer will be a more
> efficient user of the factory -- otherwise, he would just borrow to
> pay the estate tax. So to the extent that it affects capital
> investment decisions at all, the estate tax just makes the capital
> markets more liquid.
Two ASPECTS Roy is missing, 1. Money borrowed to retain ownership of the
factory is less money available to be loaned to start-ups. 2. You really
can't borrow to pay taxes. As many small businessmen have found out to
their sorrow--which is why otherwise profitable businesses get sold for
estate tax reasons. As even Clinton Admin economists have been honest
enough to admit:
http://www.j-bradford-delong.net/movable_type/2003_archives/000503.html
<< I understand that the estate tax can be a problem for successful parents
who just want to leave their assets to their children. I understand that it
is wrong-headed and divisive for people to use class warfare rhetoric or
demonize those who have just realized the economic success that most
Americans want. I understand that while much of what is passed on to heirs
is untaxed capital gains (56 percent for estates over $10 million) - - some
is based on wealth that came from taxable income. >>
xenman
>
>"xenman" <xen...@sprynet.nospaam.com> wrote in message
>news:r5e8rvs7lhhapqis4...@4ax.com...
>>
>> >> >
>> >> >Sure he does. A full-time taxi driver in any major American city can
>> >> >easily make $40k/year. And if he's married, it's likely that his wife
>> >> >works too, so they're almost certainly paying federal income tax. And
>> >> >without any doubt, they are paying FICA tax. It's a very fashionable
>> >> >lie amongst the neoconservative unintelligentsia these days that the
>> >> >poor and working classes do not pay taxes, but it is a lie
>> >> >nonetheless.
>> >> >
>> >>
>> >> What they say is they don't pay federal income taxes. The federal tax
>> >
>> >Yes, but *why* do they say it? They say it because most of the burden on
>> >those people is in the form of payroll taxes, not income taxes.
>> >
>>
>> They don't say it or imply it. Most workers in the U.S. pay more in
>> Social Security taxes,
>
>Right.
>
>> there is not such tax called a Payroll Tax, and
>
>You or someone else has said this before. I don't know why you persist in
>this blatant lie.
>
>Look at what I typed. I didn't say "*the* *P*ayroll *T*ax." I referred to
>"*p*ayroll *t*axes," which anyone will tell you is a particular *class* of
>tax.
>
Federal Income Tax is also taken out of payroll. Is that also a payroll tax?
What about unemployment tax? Is that a payroll tax? What about
"workmens comp" tax? Is that a payroll tax?
[snip]
>> >
>> >*since they will collect benefits in the future*
>> >
>> >But many conservatives insinuate that the federal government will have to
>> >default on Treasury bonds held by e.g. the Social Security trust fund
>when
>> >the fund starts paying out more than it takes in (circa 2016). In
>fairness,
>> >your argument here doesn't imply that, but many conservatives do, e.g.
>when
>> >they say the fund is in trouble circa 2016.
>> >
>> >> a variety of state and local taxes they also pay, both direct and
>> >> indirect. And to tell the whole story about federal taxes, all
>> >> federal taxes should be included.
>> >
>>
>> You're setting up straw men again.
>
>I'm not setting up any strawmen. Are you denying my claim that many
>conservatives think the fund will be in trouble circa 2016?
>
>Just because *you* don't think so (quite reasonably), doesn't mean other
>people don't think so.
>
>> Come 2016 SS benefits will exceed SS
>> taxes. This means that the general taxes will have to start paying back
>the
>> SS bonds that was spent, meaning either higher taxes or reduced benefits
>`> in other programs. The SS surplus was poorly handled by the federal
>> government, but that's a different issue. SS is in a real mess come 2034.
>
Now you're backpedaling. First you claimed "default", now you are claiming
"trouble." That is a big difference. Troublesome or Problematic, yes;
default, no.
xenman
I've seen those debates. The subject was Federal Income Taxes, and in
that case, the poor and lower middle class do not pay any.
xenman
Well, a lot of people work "off the books". This means that their income
is not taxed. This includes drug dealers, theives, construction workers
doing work on the side for a neighbor, a lot of nannys, etc. But most of
what these people buy is not in the underground economy. While there is
still unreported sales it is much smaller than unreported income.
xenman
>
>"xenman" <xen...@sprynet.nospaam.com> wrote in message
>news:4ke7rv8suj82lq8ma...@4ax.com...
>>
>> >> I've never heard anyone argue that we should eliminate all taxes on
>> >> investment income.
>> >
>> >Really? That's surprising.
>> >
>>
>> We're all waiting for your evidence of a serious public policy
>> proposal to eliminate all taxes on investment income, including
>> dividends, capital gains, rent, and interest.
>
>Nice weasel word: "serious".
How cute....
>
>OK:
>http://cgi.usatoday.com/elect/ep/epr/eprg008.htm
>"Forbes proposal would eliminate the deductions for mortgage interest and
>charitable contributions to compensate for revenues lost under his 17
>percent flat tax. He has risen in the polls on the strength of a blitz of
>ads promoting his tax and attacking Senate Majority Leader Bob Dole, even
>though critics say his plan would harm middle-class homeowners and benefit
>the wealthy because it would eliminate taxes on investment income."
>
>From http://www.cse.org/informed/issues_template.php/87.htm
>"The flat tax would also eliminate punitive taxes like the capital gains
>tax, dividend taxes, and interest taxes. Under existing tax law, interest
>and dividend income are taxed at both the corporate and the individual
>level, meaning investors are double-taxed. With the flat tax, however,
>individuals who earn interest and dividend income would no longer be
>required to pay taxes directly on this income. This would effectively end
>the excessive double taxation of investment income."
>
>Of course, I'm sure you'll argue that this doesn't eliminate taxes on e.g.
>dividends, because they're already taxed once at the corporate level.
>
>>
>> As long as we have an income tax in this country, most forms
>> of income, including investment income, should be taxed. While
>> there can be debate about how high (or low) the tax rates should
>> be, I've yet to see a serious policy proposal to eliminate taxes on
>> all investment income yet keeping income taxes on other sources
>> of income.
>>
>
I'll accept that Steve Forbes may have proposed such, but using
a major news media to report what he has said when ti's been documented
that they have a history of distorting his positions is not my idea
of proof. I would much rather see a copy of his own position paper
rather than from a source that is known to distort his views.
Rue The Day
Most of what drug dealers and thieves buy is not in the underground
economy???
Anyway, I don't think any serious economist doubts that a consumption
tax would create a huge black market for untaxed goods. With the
internet, it would be quite easy.
tonyp
"sinister" <sini...@nospam.invalid> wrote
> My point exactly. When you're rich, you can consume (in this case, the
> object of consumption is political power) by having the company do it for
> you.
It's worse than that. Sometimes, merely _having_ money, rather than spending
it, buys you all sorts of benefits. For a fanciful example, see Mark Twain's
short story, "The 100,000 Pound Banknote". For more practical examples, visit
Las Vegas sometime.
-- Tony P.
ro...@telus.net
<groan>
>Company makes a profit of $ 100. Company pays tax of $ 50 on that (
>don't worry about the rates, just look at the example ).
>Company reinvests $ 25 and pays $ 25 in dividends. Dividends are taxed
>as income to the recipients.
>Has that $ 100 of profits been subjected to two levels of taxation ?
>No. Have the dividends ? Yes.
?? No.
>They are double taxed.
?? No, of course they aren't. The company paid the tax on profits,
not dividends. The shareholder paid the tax on dividends, not
profits. Profits are not dividends. Dividends are not profits.
Profits and dividends are two different forms of income, received by
two different entities, for two different reasons. The claim that
dividends are "double taxed" because the shareholders' dividend income
is the same income as the company's profits is just a flat, outright
lie.
>The rest of the world does it differently.
Irrelevant.
>Company makes $ 100. Decides to pay $ 25 dividends. So, the company
>pays tax on $ 75 of retained profit. Pays corporation tax and
>reinvests the remainder.
IOW, the dividend is treated as an expense, like interest payments.
Some expenses are allowable deductions for tax purposes and others
aren't; but if a given type of expense is not an allowable deduction,
that doesn't mean it is "double taxation" when it is taxed in the
recipient's hands as well as the company's hands. It's just a matter
of what the government wants to tax.
Consider a masseuse for the CEO or some other perk that the government
decides is not a legitimate company expense for tax purposes. The
company pays tax on the money spent to hire the masseuse, and the
masseuse must then pay income tax on her salary. According to your
"logic," that's "double taxation" for exactly the same reason as
dividends.
But if that is the case, then double, triple, and quadruple taxation
are _routinely_ applied to labor income. So why not dividend income?
>Individuals receive $ 25 in dividends and pay income tax on it. This
>is single taxation of dividends.
The US system is also single taxation of dividends.
>Whatever you want to say about the corporation and the individual
>being different legal entities , the above are quite clearly two
>different situations. And have different economic effects.
Certainly. But That doesn't mean dividends are profits, or profits
are dividends.
>There are a number of pernicious effects from such taxation of
>dividends : think about the difference in taxation of loan or bond
>income for example : The company deducts interest before declaring
>taxable income, so there is only one level of taxation on interest
>payments. We have now skewed the investment climate in favour of
>funding via loans rather than equity capital. Just what we need, even
>greater gearing and fragility for corporations.
There is no way to make taxation of earned income or corporate profits
fair or economically benign. Deal with it.
>We have also raised the cost of equity capital to companies.
>And we have reduced the incentive to save in equities rather than
>bonds.
>
>Pretty good for a taxation system you deny even exists Roy.
Any government decision on the allowability or non-allowability of
expenses will have economic effects. Pernicious ones are completely
routine and accepted when they arise from taxation of the earned
incomes of working people. Why should shareholders' unearned dividend
income be privileged?
>Of course the solution is even simpler than the Bush proposals.
>Abolish all corporate profit taxation entirely. All corporate income
>becomes income for someone else : for an individual in the end. Tax it
>when it becomes personal income.
I thought you said something about a "solution"?
Income tax is not a solution. Income tax is the problem.
-- Roy L
ro...@telus.net
wrote:
><ro...@telus.net>
>
>the professional writer with idiosyncratic semantic tastes,
>
> wrote in message news:3fb2c1e6...@news.telus.net...
>
>> >> That's right. I clearly stated that I was just providing some
>> >> background information for my argument at that point and not yet
>> >> directly addressing Mankiw's position.
>> >
>> >Why would you do that in a thread titled, "Mankiw wrong on estate tax"?
>A
>> >title you created.
>>
>> Because unlike you, he understands that context is necessary to an
>> honest and informative discussion (or do you habitually chop the
>> context just _because_ you also understand that?).
>
>The context would be Mankiw's actual argument, which Rue the Day just
>admitted he ignored.
Lie. As he said above, he was giving context needed to understand his
response to Mankiw's argument, not "ignoring" it.
>> >> Either we tax income
>> >> or we don't, and if we do, to suggest that wage income be taxed while
>> >> investment income is not in the name of "fairness" is lunacy.
>> >
>> >Mankiw also didn't say that.
>>
>> Right. Mankiw carefully avoided identifying who should be taxed, and
>> for what, in order to make up the foregone estate tax revenue --
>> microscopic as it is.
>
>Mankiw did not say investment income should not be taxed. Is our Canadian
>friend confused about the definitions of wealth v. income?
?? Have you forgotten so soon? _I'm_ the one who constantly has to
remind lying liars like you of the difference between wealth and
income.
>> >> Furthermore, Milton's example is just flat out wrong in that it fails
>> >> to account for the fact that Spendthrift Sam is paying sales tax on
>> >> goods he purchases, excise taxes on other goods, and property tax on
>> >> real property that he purchases.
>> >
>> >Not to the federal government he isn't.
>>
>> Wrong. Many of his purchases will likely be taxed federally, and he
>> will also be sharing some portion of the federal income tax burdens of
>> many of the providers he buys his consumer goods and services from.
>
>Excise taxes to the federal govt. are likely trivial.
Thank you for admitting that you lied.
>There is no federal
>sales tax, nor federal real property tax. While Frugal Frank WILL pay taxes
>to the federal government on his investment income...and contrary to the
>ignorant ravings of roy, he will pay double taxes on certain kinds of
>investment income (i.e. dividends).
Nope. That claim has been utterly demolished -- unless, that is, you
are also willing to stipulate that labor income is routinely double-,
triple-, and quadruple-taxed, but that is OK with you, because tax
fairness to working people is not important.
>> >> Opportunity costs are largely irrelevant to this particular analysis.
>> >> It's merely a transfer of an asset from one party to another. Much
>> >> like what happens when the old man dies and transfers the asset to his
>> >> son.
>> >
>> >You missed the point completely.
>>
>> No, it was the "point" that missed completely. The argument about
>> opportunity cost is completely spurious, because it doesn't consider
>> all aspects of the transactions.
>
>180 degrees from the truth. He was missing an aspect in his analysis.
>Which I provided.
You didn't provide enough, though. He missed equivalent terms that
cancel. You want to put one missing term in, but not the other.
That's not how equations work.
>> >If an heir does not have to sell the
>> >family factory to satisfy estate taxes it will continue to exist.
>>
>> ?? And it would somehow be vaporized if he sells it to someone who is
>> able to use it more productively?
>
>Take a loot at the very next word I wrote:
>
>> >AND,
>
>which was followed by
>
>> the
>> >investor who would have purchased that factory will have to find another
>> >investment opportunity for his money. Meaning he can invest in a new
>> >factory, and the country will have two, rather than one factories.
>>
>> No. Both the heir and the prospective buyer want to make money, and
>> so do their other potential competitors. If there is room in the
>> market for another factory of that type, _someone_ will build it,
>> estate tax or no.
>
>Dumbkopf, the question is about capital formation. If the government takes
>someone's capital away there is less of it.
Nope. There is only less in his hands. Money government takes from
one taxpayer is money not taken from others. You see? You want to
count only one side of the equation.
>> In any case, the heir will only sell if the buyer will be a more
>> efficient user of the factory -- otherwise, he would just borrow to
>> pay the estate tax. So to the extent that it affects capital
>> investment decisions at all, the estate tax just makes the capital
>> markets more liquid.
>
>Two ASPECTS Roy is missing, 1. Money borrowed to retain ownership of the
>factory is less money available to be loaned to start-ups.
Nope. Other people get to keep the money that government would have
had to take from them had the heir not paid his taxes.
>2. You really
>can't borrow to pay taxes.
Of course you can. People do it all the time.
>As many small businessmen have found out to
>their sorrow--which is why otherwise profitable businesses get sold for
>estate tax reasons.
That is _extremely_ rare. Most often, the heirs have neither the
ability nor the inclination to run the business profitably.
>As even Clinton Admin economists have been honest
>enough to admit:
>
>http://www.j-bradford-delong.net/movable_type/2003_archives/000503.html
>
><< I understand that the estate tax can be a problem for successful parents
>who just want to leave their assets to their children. I understand that it
>is wrong-headed and divisive for people to use class warfare rhetoric or
>demonize those who have just realized the economic success that most
>Americans want. I understand that while much of what is passed on to heirs
>is untaxed capital gains (56 percent for estates over $10 million) - - some
>is based on wealth that came from taxable income. >>
But most is still previously untaxed capital gains. Not double taxed.
_Never_ taxed.
-- Roy L
Rue The Day
> <ro...@telus.net>
>
> the professional writer with idiosyncratic semantic tastes,
>
> wrote in message news:3fb2c1e6...@news.telus.net...
>
> > >> That's right. I clearly stated that I was just providing some
> > >> background information for my argument at that point and not yet
> > >> directly addressing Mankiw's position.
> > >
> > >Why would you do that in a thread titled, "Mankiw wrong on estate tax"?
> A
> > >title you created.
> >
> > Because unlike you, he understands that context is necessary to an
> > honest and informative discussion (or do you habitually chop the
> > context just _because_ you also understand that?).
>
> The context would be Mankiw's actual argument, which Rue the Day just
> admitted he ignored.
Ignored? LOL. I said I was providing context, you know, background
information, to properly set up my argument. Some people like to just
jump in and start blathering on and on, I prefer to provide a
structured argument.
Tim Worstall
It doesn't have to be. But we still do try and make the distinction
between equity and debt when investing. Greater avaliability of equity
investment in the sort of range I indicate will lead to more small
businesses being formed : and they are the engine of growth of the
economy, whatever those who run large companies try to tell us.
>
> And no, there's no collateral---it's *credit card debt*.
>
> By the way, your argument here is very dangerous. You're claiming that
> there's a good chance that capital markets will be unable to fund worthy
> projects in the range you suggest unless we allow people to inherit large
> sums. Implicitly, you're making an argument that there's a market failure.
You can look at it that way if you wish : I do think there is a market
failure as we are currently set up. It is virtually impossible to
raise equity capital in the $ 50,000 - $ 500,000 range : too small for
VC's ( they regularly spend $ 100,00 on due diligence, so it is
uneconomic to invest these sorts of sums ) and too large for all but a
few to raise on their perosnal credit lines ( which as above is not
equity, but you know what I mean anyway ).
The only way to raise these sorts of sums is either through friends
and families, or by convincing someone rich to take a punt on your
idea. The recent appearance of Angel Networks is an attempt to cover
this , as you say, market failure.
Of course, there would be less of this market failure if the Govt
allowed more people to keep the fruits of earlier investements : so
youcan look at it as a market failure, but one at lesat partially
caused by earlier Govt action.
> OK with me, but doesn't seem to square with what appears to be your general
> take on markets.
I'm always willing to admit that there are market failures, even
places where there is an abscence of markets, and we need to design
them via regulation. I do argue pretty hard that markets are usually
the best solution to an economic problem : but I'm always willing to
listen and even, dare I say it on a NG, think about, exceptions.
If you want to go and tax the consumption of political power,what do
we do to senators ?
Tim Worstall
>
> > Tim Worstall
> > >
> > > > Tim Worstall
xenman
Sure, there's lots of double and triple taxation. Just because it
exists one place doesn't justify it for every place else. Silly.
xenman
>> >> Well one advantage is that you will start to tax the underground
>> >> economy. It would also be more stable than the current system.
>> >> Consumptions taxes are less reflective of the business cycle than
>> >> income taxes.
>> >
>> >
>> >How will you tax the underground economy? By definition, the
>> >underground economy consists of activity not reported to the
>> >government. So if that activity consists of work not reported to the
>> >government the proceeds of which are used to legitimately buy goods,
>> >you can recoup some of that (minus savings) activity with a
>> >consumption tax. However, if the activity is the underground sale of
>> >goods and service, then you lose that tax revenue. A consumption tax
>> >would almost certainly shift underground activity towards the latter
>> >scenario.
>>
>> Well, a lot of people work "off the books". This means that their income
>> is not taxed. This includes drug dealers, theives, construction workers
>> doing work on the side for a neighbor, a lot of nannys, etc. But most of
>> what these people buy is not in the underground economy. While there is
>> still unreported sales it is much smaller than unreported income.
>
>
>Most of what drug dealers and thieves buy is not in the underground
>economy???
>
They still gotta buy stuff. There's just not that many goods available
for sale that are in the underground markets.
>Anyway, I don't think any serious economist doubts that a consumption
>tax would create a huge black market for untaxed goods. With the
>internet, it would be quite easy.
Surely, if the primary tax at the federal level was a consumption tax, the
illegal sales that avoid the tax would increase. This is one of the reasons
why those that propose such prefer a vat instead of a sales tax.
As I write this I remember the situation of a friend that had a babysitter/nanny
quit on her because my friend issued a 1099 tax form after the end of
the year. The was in the late 1990s, before tax rates for lower income people
were dramatically lowered.
susupply
"Rue The Day" <ruet...@outgun.com> wrote in message
news:a44a8c58.03111...@posting.google.com...
> > The context would be Mankiw's actual argument, which Rue the Day just
> > admitted he ignored.
>
> Ignored? LOL. I said I was providing context, you know, background
> information, to properly set up my argument. Some people like to just
> jump in and start blathering on and on, I prefer to provide a
> structured argument.
You prefer to create red herrings (or straw men). Iow, a logical fallacy.
susupply
<ro...@telus.net>
apparently unaware of the more elementary points of capitalism,
wrote in message news:3fb5cdc2...@news.telus.net...
> ?? No, of course they aren't. The company paid the tax on profits,
> not dividends. The shareholder paid the tax on dividends, not
> profits. Profits are not dividends. Dividends are not profits.
> Profits and dividends are two different forms of income, received by
> two different entities, for two different reasons. The claim that
> dividends are "double taxed" because the shareholders' dividend income
> is the same income as the company's profits is just a flat, outright
> lie.
and
> Consider a masseuse for the CEO or some other perk that the government
> decides is not a legitimate company expense for tax purposes. The
> company pays tax on the money spent to hire the masseuse, and the
> masseuse must then pay income tax on her salary. According to your
> "logic," that's "double taxation" for exactly the same reason as
> dividends.
>
> But if that is the case, then double, triple, and quadruple taxation
> are _routinely_ applied to labor income. So why not dividend income?
and
> Any government decision on the allowability or non-allowability of
> expenses will have economic effects. Pernicious ones are completely
> routine and accepted when they arise from taxation of the earned
> incomes of working people. Why should shareholders' unearned dividend
> income be privileged?
Who do you think owns the corporations, halfwit? Your masseuse doesn't have
an investment in the CEO. Nor does your auto mechanic have any ownership in
you.
> >Of course the solution is even simpler than the Bush proposals.
> >Abolish all corporate profit taxation entirely. All corporate income
> >becomes income for someone else : for an individual in the end. Tax it
> >when it becomes personal income.
It already is income for individuals, and it is double taxed when any of it
is paid out to those individuals. They own the corporation.
susupply
<ro...@telus.net> wrote in message news:3fb5d4c3...@news.telus.net...
> On Fri, 14 Nov 2003 16:36:47 GMT, "susupply" <susu...@mindspring.com>
> >Mankiw did not say investment income should not be taxed. Is our
Canadian
> >friend confused about the definitions of wealth v. income?
>
> ?? Have you forgotten so soon? _I'm_ the one who constantly has to
> remind lying liars like you of the difference between wealth and
> income.
I take it that is your charming way of admitting you are lying about Mankiw
arguing for not taxing investment income.
[snip]
> >There is no federal
> >sales tax, nor federal real property tax. While Frugal Frank WILL pay
taxes
> >to the federal government on his investment income...and contrary to the
> >ignorant ravings of roy, he will pay double taxes on certain kinds of
> >investment income (i.e. dividends).
>
> Nope. That claim has been utterly demolished
The only thing demolished in any shred of credibility you were clinging to.
> -- unless, that is, you
> are also willing to stipulate that labor income is routinely double-,
> triple-, and quadruple-taxed, but that is OK with you, because tax
> fairness to working people is not important.
Since labor income does not derive--by definition--from any ownership in the
source of the income, your argument is a non-sequitur. Or, perhaps I should
say, yet another non-sequitur.
[snip]
> >Dumbkopf, the question is about capital formation. If the government
takes
> >someone's capital away there is less of it.
>
> Nope. There is only less in his hands. Money government takes from
> one taxpayer is money not taken from others. You see? You want to
> count only one side of the equation.
First, Roy seems totally ignorant of the SPENDING side of the equation.
Even Paul Krugman--"starve the beast"--isn't this dishonest.
Second. Here's a lesson in 4th grade arithmetic for Roy to solve: Johnny
has $100 invested in his lemonade stand. Mary has $100 to invest in a small
business. Thus, combined the class has $200 in capital.
Now Johnny is about to graduate to the 5th grade, and the teacher decrees
that Johnny "can't take it with him", and must sell his business, give half
the proceeds to the 4th grade Halloween Party Fund, and half to Roy, an
incoming 4th grader, to use as he wishes.
Mary, who must repeat 4th grade, decides to buy Johnny's lemonade stand
rather than some bicycle repair tools she'd been considering. Roy takes
Johnny's $50 bequest and spends it on candy.
The question is, ceteris paribus, does the 4th grade have as much capital as
they did before Johnny was forced to sell his lemonade stand?
[snip]
> >Two ASPECTS Roy is missing, 1. Money borrowed to retain ownership of the
> >factory is less money available to be loaned to start-ups.
>
> Nope. Other people get to keep the money that government would have
> had to take from them had the heir not paid his taxes.
Two points, Roy ignores the question of loanable funds. AND, he has a
rather naive idea of how government works.
> >2. You really
> >can't borrow to pay taxes.
>
> Of course you can. People do it all the time.
>
> >As many small businessmen have found out to
> >their sorrow--which is why otherwise profitable businesses get sold for
> >estate tax reasons.
>
> That is _extremely_ rare. Most often, the heirs have neither the
> ability nor the inclination to run the business profitably.
In this case they don't have the cash flow.
> >As even Clinton Admin economists have been honest
> >enough to admit:
> >
> >http://www.j-bradford-delong.net/movable_type/2003_archives/000503.html
> >
> ><< I understand that the estate tax can be a problem for successful
parents
> >who just want to leave their assets to their children. I understand that
it
> >is wrong-headed and divisive for people to use class warfare rhetoric or
> >demonize those who have just realized the economic success that most
> >Americans want. I understand that while much of what is passed on to
heirs
> >is untaxed capital gains (56 percent for estates over $10 million) - -
some
> >is based on wealth that came from taxable income. >>
>
> But most is still previously untaxed capital gains. Not double taxed.
> _Never_ taxed.
Sperling was not quite as honest as he could have been...and he caught you.
His 56% is only for estates over $10 million. And even that could be
handled with an adjustment for how the cost basis for capital gains is
handled. Or, eliminate the double taxation of dividends thus reducing one
excuse for corporations to retain earnings.