Warren tweeted that they should fix the tax code so Musk pays more taxes.
Musk called her “Senator Karen,” and pointed out that he will pay more taxes than any American in history this year. (That seems correct. He deferred capital gains taxes, but did not avoid them.)
Given that Musk actually accomplishes things while the congress basically just jerks off, it’s not unreasonable to posit that the country should give money to him, rather than the other way around.
That said, Warren’s point is probably valid when applied to most other billionaires. Even many of them have admitted they should pay more taxes.
I keep hearing Democratic politicians calling on the rich to pay their fair share. But aside from the presumption that their share is more than they currently pay, those politicians rarely if ever quantify what percentage is fair.
In many ways, I am a terrible Republican. I despise Trump and I have never made enough money that tax cuts/increases have had a significant impact on me. But I still have opinions about taxes. Honestly, I don’t care what a billionaire’s fair share should be. As I see it, taxes should do two interconnected things. They need to fund the government while minimizing negative impacts on the economy. Many rich people earn most of their money through capital gains (selling an asset for more than you paid for it). There are strong economic arguments for taxing those gains at a lower percentage than regular income. In part, that’s because people generally have much greater flexibility about when they sell an asset. Lower capital gains tax rates usually mean more asset sales and more revenue going to the government than the government received with the higher rate.
Barack Obama was once asked, if it was guaranteed that raising the capital gains tax rate would lead to less government revenue, would he raise it anyway? He said he would out of “fairness.” I think that is just wrong. Tax rates affect decisions to save and invest. That’s generally the same thing from the point of view of the economy. Rich guy can take his money and use it to expand his business. If he saves his money in a bank, the bank loans that money out so other people can expand their businesses.
As Adam is sure to mention I am not an economist. I don’t know what the perfect tax rate is that will maximize government revenue while also maximizing economic growth. Actually, I doubt you can maximize both. But there is probably a sweet spot with the proper balance. But getting mad at Billionaires for paying very little taxes in years they took very little income out of their businesses is not helpful. Instituting a wealth tax, as Warren has suggested, is just going to lead to capitol fleeing the country which does not help increase our GDP. Exit taxes will be only semi successful at curbing that because as soon as it seems an exit tax might happen assets will the U.S. as though it were on fire.
Yes, you zeroed in on an important point. Everyone agrees that each taxpayer, including the rich, should pay a fair share, but nobody seems to be able to define “fair.”
Some of our existing tax codes are just ridiculous. I still have a tiny corporation, but I don’t pay myself any salary because if I did, the same money would be taxed three times!
1. I have to pay the employer share of FICA.
2. I have to pay the employee share of FICA.
3. If my income goes up, it makes a higher percentage of my Social Security taxable.
So I just stopped taking a draw out of the company, since I don’t need it to live.
The ultra-rich have to pull off similar machinations, but on a very different scale. Do I have any investment losses to offset the gains I may earn by exercising my stock options? If not, I’ll wait until next year to exercise those options, when I can offset them with (_____). So this year I’ll claim zero in income. Big deal. I still have a few billion lying around to pay the mortgage and buy my eggs and milk.
Even the sleaze economy has similar problems. I can remember gamblers at the track scooping losing tickets off the floor and into their shopping bags, so in case they hit a score big enough to require W-2G paperwork, they can avoid paying taxes on it by offsetting it with provable losses.
1.Economists try to be positive. This doesn’t mean there are no negative economists, this means economists try not to engage in judgements over values as in positive (objective) vs normative (subjective.)
So, ‘fairness’ means nothing to me, and I never use the word in economics.
2.I think that capital gains, dividends and income taxes should be all at the same ‘normal’ rate paid by the individual not out of any notion of ‘fairness’ but precisely because the incentives, contrary to what the public lobbying of wealthy people and investment fund spokespeople want you to believe, tend to be perverse.
Lower capital gains and dividends taxes tend to lead people to making investment (and life) decisions that they would not make were it not for the lower rates especially on certain favored entities. The worst, from what I’ve read about the research, are people with no business sense, trying to start businesses simply due to the lower tax rates on business.
Of course, bank loan officers are supposed to provide due diligence and stop these people before they can start, but:
20% of small businesses fail in their first year
50% of small businesses fail after five years in business.
Of course, I’m not claiming all these business that fail are owned by people who started a business simply to pay lower taxes.
3.The biggest problem with lower capital gains taxes is the way that it tends to lead to asset prices being higher than they would be otherwise. Again, this isn’t all due to taxes, but the United States certainly resembles a casino economy of booms and busts. I remember in the 1980s and early 1990s the enormous lobbying effort to have capital gains taxes lowered, and the claims of the benefits of long term economic growth this would bring. Interestingly, if you search for academic research on the benefits of lower capital gains taxes at the time of this lobbying, it’s virtually non-existent. Anyway, not long after President Clinton and the Republican Congress lowered capital gains tax rates, the stock markets boomed, and then the ‘dot.com’ bubble burst in 2000, leading to a recession. A few years after that, came a housing asset bubble, and then that busted leading to the Financial Meltdown of 2008. Again though, it’s hard to isolate the degree to which lower capital gains taxes caused these things, but the timing does seem to be more than a little coincidental.
4.The argument that lower capital gains taxes results in more asset sales resulting in higher taxes paid doesn’t really make any sense. If person A buys a stock at $20 and sells it at $25 and pays taxes on it, and person B then buys the stock at $25 and sells it at $30 and pays taxes on it, of course it depends on both overall level of income, but it’s likely no different than person A buying the stock at $20 and selling at $30.
The primary gain is to the stock brokerage who have four commissions instead of two (buy and sell twice.) As I said above though, it is likely that the lower capital gains taxes cause the stock to be higher priced than it would be otherwise, so rather than the stock price being $30, it might be $29 instead when it’s sold by person A. However, the recessions caused by asset prices bursting in the U.S casino economy obviously causes far greater losses than the short term higher revenue caused by the higher asset prices. Of course, the U.S also doesn’t just have a casino economy due to capital gains taxes being taxed less than ‘normal’ income.
5.The argument in favor of lower capital gains taxes that is valid is that a good deal of the capital gain is just inflation. If a person buys a stock at $100 and sells a year later at $102, and the inflation rate was 2% for the year, the person pays a capital gain on the $2, even though they’re no further ahead. There are capital gains tax formulas that take inflation into account that make sense to me.
6.Shifting to sales taxes over time might make sense. There are ways to address the regressive nature of sales taxes with something resembling a basic income as Andrew Yang argued for in the 2020 Democratic Presidential Primary (he did not invent the idea.) The problem aside from black markets, which can be substantial, with high sales tax rates as would be needed if income taxes were eliminated, is that, this is an area where ‘fairness’ does come up. Those who have invested in 401Ks would suddenly be faced with these savings being subjected to sales taxes after saving to reduce future income taxes. So, any shift to a sales tax would have to either be gradual or announced some time in advance. Of course, that would also lead to people shifting spending decisions and the like.
7.I see two problems with wealth taxes:
i.Determining how much everybody is worth. How is this going to work, is everybody’s wealth going to be appraised every year? If only certain easily counted wealth is subject, obviously people would shift from, say, having their money in the bank, to buying artwork and the like. There are arguments of ways to do this, but I don’t know that any of them are practical.
ii.I don’t think many wealthy people would leave the U.S and renounce their citizenship if a wealth tax were implemented, I think the most likely thing is most people over time would simply stop making new direct investments (starting new businesses.) With the exception of property taxes, there has been an implicit agreement between the government and the citizens that the government will tax income but not wealth. Of course the government can say that the wealth tax would just be 1% on wealth above a certain amount, but why would anybody believe the government wouldn’t increase this percent if not lower the amount? Arbitrary taxes like wealth taxes tend to destroy the incentive to invest. You can see what happened in 2013 when the Cyprus government tried to levy a tax on savings in banks.
Forgot to mention
8.The obvious wealth tax that does work is an inheritance tax. Not only would high inheritance taxes bring in a fairly large and relatively consistent amount of tax revenue each year, they’re really fairly hiss free.
French Finance Minister under King Louis XIV:
“The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”
Contrary to wealth taxes, I actually doubt that most people make investment decisions with the goal of passing on large inheritances to their descendants. The goal I think of most for their descendants is in giving them a better start in life, like with better schools, not with trying to set them up for life, so, it’s unlikely that inheritance taxes would deter investment.
Of course, there would need to be ways of making sure the inheritance tax can be collected so that tax shielded transfers of wealth would have to be prevented from blocking this, but outside of Republicans lying about ‘death taxes’ and bringing up phony concerns of family farms, the only people who hiss over inheritance taxes are people like Donald Trump Jr, Erik Trump and Ivanka Trump.
Two more points, my posts are long enough they have to be broken down anyway.
1.Inheritance taxes for me also have nothing to do with any notion of ‘fairness.’
i.There is an amount of taxes that need to be collected every year in order to finance the maintenance of a nation. From the quote of the French Finance Minister (Jean Baptiste Colbert) inheritance taxes are easily the least economically distorting.
ii.This is more complicated, but while it complicates succession, it doesn’t really make sense that a person is qualified to be a CEO of a corporation simply because they happen to be born into a wealthy family. With the notion of the United States being a meritocracy and given the number of employees involved in large private corporations, I think children of wealthy people becoming CEOs due to succession is something that should be discouraged.
2.I understand the idea of wealth taxes due to the large increase in asset prices during the pandemic. The PBS program Frontline had a good episode a few months back explaining how the Federal Reserve’s bond buying program (the so-called Quantitative Easing) restarted at the beginning of the pandemic led to these asset price booms.
While I prefer to not make stock market predictions, I think it’s safe to argue that once the Federal Reserve starts tapering the QE (its already been announced and may have contributed to yesterday’s stock market declines) asset prices will start to decline, and if (and necessarily when) the Federal Reserve starts to actually selling the bonds back so as to reduce its balance sheet, I would expect a substantial drop in asset prices. The Federal Reserve tried to do this once when Trump was President and nearly brought on a recession.
Of course, those who sell off their holdings at the top and put their money in a bank will hold their gains, but I expect most of the wealth gained during this pandemic will be lost.
I also expect when the Federal Reserve finally does reduce their balance sheet that the values of the crypto currencies will finally collapse. A tulip bulb should then be given to every crypto currency investor.
Can’t I avoid inheritance taxes simply by placing all of my current assets in joint names/accounts with those I intend to endow? That way my wife or children don’t inherit when I die, they just keep on owning what they already own. (It also obviates the need for a will, since I have no estate left to divide except the coins in my pocket, and there is neither long waiting periods nor costly and slow legal procedures required for my wife or descendants to get control of the assets.)
How can inheritance taxes avoid this asset-sharing problem?
I don’t have an idea what the correct tax rate is. I do have a few ideas that should be tried.
1. Don’t lobby the government to reduce IRS funding.
2. If your new tax cut causes deficit spending, you don’t deserve it.
3. If you live in taker state odds are your lower tax rate comes at the expense of someone else.
Billionaires currently mostly live off borrowed money. At current interest rates it’s much cheaper to borrow the money than sell assets and incur a capital gains tax hit.
Musk is that rare billionaire I actually like. He seems to be legitimately brilliant and is interested in building and manufacturing things. He also doesn’t bother with all the woke lip service that a lot of rich white people engage in these days.
This argument always drives me crazy for many reasons.
1) Musk, and any other citizen, is paying their taxes according to the code that has been established by politicians just like Elizabeth Warren. If she hates the tax code so much, do something about it. Democrats control all three chambers right now. If they are unable to pass tax reform, dems have nobody to blems but themselves (and Manchin and Synema, who are both dems). Under Obama, for his first 7 months, they actually controlled all three chambers and had a filibuster proof senate. Yet, they did nothing to “fix the gaps”.
2) Every american has the ability to go the the IRS website and make a “donation” to the IRS. When filling out your taxes, you can overpay and decline a refund. All of these self-rightous millionaires and billionaires have every opportunity to pay what they think their “fair share” is. However, they choose not too, because they don’t have to. Hypocrisy, thy name is “fair share”.
3) This is the perfect example of why we, as a country, should move away from an income tax, or at least minimize it substantially, and instead institute a consumption tax. Rich people spend a hell of a lot of money each year. So, institute a consumption tax that gradually increases based on the size of the product being purchased. Americans would barely notice the tax when buying a gallon of milk, but someone buying a Bentley would see it and pay more. Will that stop them from purchasing? Hell no! This is how you capture taxes on the “underground economy”, which is the economy that is off the books and not-reported. Best example…drug dealers.
I wouldn’t presume that the wealthy can’t avoid sales or consumption taxes. They also don’t necessarily spend more money on goods and services relative to their income. There’s a reason a lot of the taker states have sales tax but not income tax.
Regarding Musk’s taxes:
Musk already gets lots of money from the government. NASA is probably Space-X’s biggest customer and Tesla gets their cars subsidized. His accomplishments are pretty much extracting money from the government.
You can’t avoid a consumption tax if it is added at the point-of-sale. Doesn’t matter what product it is. However, as we have seen, you can always cook the books to avoid “earning income”, and thereby avoiding income taxes.
Can’t evade sales tax?
I wouldn’t assume that the wealthy can’t avoid a sales tax.
Another example are cigarette taxes. Its entirely a sales tax but there’s a healthy black market for cigarettes and cigars just to avoid the taxes on those.
Clearly, should the code be changed to a graduated sales tax, exemptions like this would be outlawed. This was attempted because of a loophole that described a purchase with intent to resell. That would not fly in the method I am talking about. It would be a straight tax based on purchase price.
Just move to Oregon ….no sales tax.
I don’t think he was suggesting something like a flat sales tax. Such taxes are actually regressive, since poor people end up paying a much higher percentage of their income. I think maybe he was hinting at a graduated scale like some of the VAT taxes, where people pay no taxes for necessities, tiny taxes for small pleasures, large taxes for harmful indulgences like alcohol and tobacco, and monstrous taxes for pure luxuries.
Even those taxes often end up regressive because poor people spend way too much money on alcohol and tobacco.
Kind of. The graduates tax, in my mind, is not based on any product, but the price of the purchased product. Heres a very crude example: on and product less than $5, the tax would be one penny. For any product between $5-$25, the tax is three pennies. For any product over $100,000, the graduates tax might be $1500.
Like I said, that’s a crude example, but that’s the idea. The product purchased plays no role, only the price.
Also, wealthier people absolutely spend more money on goods and services. It doesn’t matter if the money is spent on cars, clothes, first class airline tickets. It is truly the easiest way to move towards a “fair tax” because lower to middle class income families will not be buying $100k Mercedes’ Benz, so they will pay a much lower graduates tax on the cars they do purchase.
They spend more money. But do they spend more money relative to their income?
A poor person spends most if not all of their money. The middle class might be able to save a little. The wealthy? They don’t spend most of their money. Some might but those off shore bank accounts aren’t being filled up with goods. Most wealthy aren’t especially frivolous. The amount they save is much higher than everyone else’s but saving money won’t generate sales tax revenue.
It that’s the point of the tax. If the spend more money, then they will pay more in taxes. Let’s say someone makes 2 million, and they spend 5% on goods. That’s $100k of purchases that can be taxed. Now let’s say someone earns $60k and spends 50%. That’s only 30k of purchases that can be taxed, and I’m willing to bet the size of those $30k purchases will fall towards the lower end of the $ amount per purchase.
That person making 2 million is outnumbered by 10:1 or more.
Its not an argument of $100k vs $30k. Its an argument of $100k vs 10x $30k.
“Democrats control all three chambers right now” ROFLMAO!
Do they not?
You are really going to ask that? Nice faux innocence. How much of their agenda have they been able to get passed? Damn little. Nope, Sinema and Manchin are Repblicans in all but name. Moderate Republicans, maybe – which is a thing that has been exterminated in the GOP as it now exists – but DINOs.
Except they aren’t republicans. There is no faux innocence, just a lack of accepting the reality on your part. The reality is they are democrats. Hence my premise…democrats have nobody to blame but themselves. Which, btw, is a common problem both parties have. They are great at rallying all votes when they are in the minority, but as soon as the take the majority, they splinter like a broken bat.
They are Democrats in name only. They have strangled the Democrat agenda. I’m moving you up from faux innocence to flat- out intellectual dishonesty.
Ok bud. Continue to ignore history and attempt to resort to name calling and insults. So very Trumpian of you.
This happens on both sides. Google Arlen Spector and Scott Brown.
Moderates in states that lean the other way always reject what they view as extremism that will hurt them in the next election. By doing so, people in their own party say the are either fake-democrats (like you are saying) or RHINOs for those on the right. It isn’t the case, but instead they are focusing on personal survival against a party moving to the extreme.
Why didn’t he pay in 2018?
Again – it is possible to defer capital gains, but not to avoid them. When you look at the taxes of the very rich, you have to look at about a ten-year average to get an accurate picture. Many of the ultra rich take no salaries, as such, so they pay no taxes in years when they exercise no stock options, or defer their capital gains, or lose money on their investments, but they might have to pay billions in other years, as it appears Musk will have to do in 2021 or 2022.
People who don’t pay taxes don’t know how taxes works