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Jul 13 2012

Dumbass Quote of the Day

From the department of ridiculous comparisons comes this real gem from John Hinderaker from Powerline. He’s complaining about Obama’s proposal to keep the Bush tax cuts in place for everyone making under $250,000 a year and return to the tax rates of the 1990s for everyone above that line. This is his argument:

Here is an interesting comparison: the percentage of families who earn over $250,000 a year happens to be almost exactly the same as the percentage of homosexuals in the population. How would our ever-courageous journalists react if an American president tried to increase his odds of re-election by demonizing homosexuals and calling for draconian legislation against them? The calculation would be the same: they are only 2 or 3% of the population, and, while not everyone dislikes them, some do. Do you think that a president who called for discriminatory legislation against homosexuals would be criticized as divisive?

That’s not an interesting comparison, it’s an idiotic one. About 2 or 3% of the population is in prison or on probation or parole. Do you think a president that called for locking up all homosexuals would be criticized? Well of course he would, but it has nothing to do with facile comparisons of percentages. And no one is “demonizing” the wealthy, for crying out loud. No one is even complaining about them being wealthy. But I shouldn’t be paying a tax rate twice that of Mitt Romney (which is admittedly a different problem from the marginal tax rate; that’s due to the capital gains tax, which should be the same as the income tax).

19 comments

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  1. 1
    Modusoperandi

    Sure, you mock it now, but picture the stormy horrors of what will happen if Our Betters have to go back to Clinton era rates.

    Yeah, I can’t either.

  2. 2
    Raging Bee

    How would our ever-courageous journalists react if an American president tried to increase his odds of re-election by demonizing homosexuals and calling for draconian legislation against them?

    Um…they’d say he’s acting like a Republican?

  3. 3
    Jordan Genso

    But I shouldn’t be paying a tax rate twice that of Mitt Romney (which is admittedly a different problem from the marginal tax rate; that’s due to the capital gains tax, which should be the same as the income tax).

    I’m glad to see you take that position. I know there’s a legit argument in favor of having a low capital gains tax, but I personally don’t want the government to discourage those who actually work for their money by taxing them higher.

    If we need to encourage investment, I support lowering risk (by strengthening the middle class) rather than increasing reward (by lowering the tax rate on investments).

  4. 4
    jeremydiamond

    From the department of ridiculous comparisons

    I thought this was going to be about the Daniel Tosh incident.

  5. 5
    Ani J. Sharmin

    Thanks very much for writing. The whole argument that the wealthy paying more taxes compared to the middle class and poor is equivalent to discrimination is frustrating beyond belief.

    @Raging Bee (#2):

    Um…they’d say he’s acting like a Republican?

    Exactly.

  6. 6
    TxSkeptic

    It is quite ridiculous to compare the persecution of a minority group with attempting to have a fair tax structure.

    What is even more ridiculous is the projection present in his what-if scenario. To tweek it slightly – what if a presidential candidate tried to increase his odds of being elected by demonizing homosexuals, blacks, immigrants and anyone who didn’t believe in their particular religious persuasion, supported voter suppression efforts, restricting the rights of women, attacking main stream science and a whole lot more.

    ‘How would our ever-courageous journalists react’? Wouldn’t such rhetoric be criticized as divisive? We don’t have to speculate here, just watch the current media coverage and weep as they call everything 50/50.

    { CNN reports on the growing controversy over whether the sky is blue, or green as Sen. Smyth (R-Ok) claims. We’ll let you the viewer decide? Text 1 for blue, text 2 for green, and tweeter us your thoughts. }

  7. 7
    Pierce R. Butler

    How ’bout calling for all those who “earn” over $250K/yr to be locked up?

  8. 8
    Randomfactor

    And every one of those families pulling in over $250,000 per year would get the same tax cut too under Obama’s proposal.

    They just wouldn’t get the ADDITIONAL tax cuts on top of that.

  9. 9
    daved

    In most cases, there is absolutely no justification for a lower rate on capital gains, because most capital gains result from buying something at a lower price and selling it at a higher price. This has absolutely nothing to do with “job creation” or “stimulating the economy.” In particular, the buying and selling of stocks and bonds has only a very minor effect on the economy, which is the payment of fees to the brokerage for doing the trade.

    The one case where I can see a lower rate is when money is spent to actually start up a business, or expand an existing business. That really does (well, potentially) expand the economy, and there is risk in doing it, so rewarding that risk makes sense.

  10. 10
    Ben P

    In most cases, there is absolutely no justification for a lower rate on capital gains, because most capital gains result from buying something at a lower price and selling it at a higher price. This has absolutely nothing to do with “job creation” or “stimulating the economy.” In particular, the buying and selling of stocks and bonds has only a very minor effect on the economy, which is the payment of fees to the brokerage for doing the trade.

    With no offense intended, this statement isn’t correct.

    I won’t come down and say capital gains should be taxed lower than wage income, or that they should not. The economic impact of a decision like that is enormously complex and I don’t have the economics to explain it fully. But there are serious policy points on both sides.

    As an initial point, if you buy and sell in the short term, any gains ARE taxed at something close to the income tax rate. You only gain the preferred tax rates if the income is for investments you’ve held over a year. So stock traders don’t qualify here.

    Second, the essence of the argument for giving capital gains favorable treatment is this:

    A very substantial part of a growing healthy economy depends on the wide availability of investment capital, whether it’s loans from banks or other financing methods. An economy where businesses cannot grow or expand because they cannot obtain financing to build a new factory or buy new equipment is a very sluggish economy. We want people who have capital to be willing to invest it, and there’s a valid argument for incentivizing capital gains in order to encourage more investment. This keeps loaned interest rates lower and allows the economy to stay mobile.

    There are of course many valid counter arguments as well, chief among them being “well, even if we don’t incentivize it, the wealthy are going to invest anyway.” You also give up income by lowering the taxes on capital gains and there’s a question as to whether any benefit is worth the income of taxing all income equally.

    Some people like “fairness” arguments, but I simply don’t find those persuasive, saying someone should pay their “fair share” is meaningless because all it really means is you think they should pay more than they do. There’s no universal definition as to what “fair” means, nor any way to measure it.

  11. 11
    jacobfromlost

    Randomfactor makes a good point. The tax brackets apply to everyone, so it is a misnomer to say that “the taxes will be continue to be cut for everyone who makes under $250,000″. More accurately, EVERYONE will continue to have a tax cut on the first $250,000 they make. If you make more than that, then you will pay a few more percent ONLY on the dollars in THAT bracket, and so forth. If you make $300,000, you’ll only be paying a few more percent (4.6? I think) on $50,000 and CONTINUE to get the cut on the $250,000.

    This change couldn’t be more modest. The top tax bracket is paying a lower tax rate now than at almost any time in the last 60 years (1988-1992 it was lower; not exactly great economic times).

    http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=213

    This shows what the TOP BRACKET tax rates were (the money paid above a certain amount MADE, not the overall tax they paid on all their money; the rich were still RICH, even when paying 91 percent above a certain level of money made).

  12. 12
    Area Man

    There’s a case to be made for lower capital gains taxes due to inflation having eaten away a large portion of the gains. But the ideal way to deal with this is to adjust the basis cost for inflation. That would complicate things, but it would make much more sense than simply giving every capital gain held for over a year, no matter how long, the same huge tax break.

    Beyond that, there is no economic justification for taxing capital gains at a lower rate. In theory, people gravitate toward whatever economic activity is most productive, and this is reflected in how much money they earn by doing it. By taxing different activities at different rates, you introduce a distortion that can lead to people doing things that are less productive but leave them with more money. This is the sort of social engineering that conservatives are supposed to be against, but it’s amazing how flexible their principles are when the interests of the rich is at stake.

  13. 13
    Ben P

    This change couldn’t be more modest. The top tax bracket is paying a lower tax rate now than at almost any time in the last 60 years (1988-1992 it was lower; not exactly great economic times).
    This shows what the TOP BRACKET tax rates were (the money paid above a certain amount MADE, not the overall tax they paid on all their money; the rich were still RICH, even when paying 91 percent above a certain level of money made).

    This is a common mistake to make. Yes, in the post-WWII years the top marginal tax rate was 91%, but the tax structure was also very different back then.

    The number you really need to look at to make that determination is effective tax rates. That shows you that despite very high top marginal rates, most of the top quintile didn’t pay any more than they paid today because exemptions and deductions were different.

    http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=456

  14. 14
    Jordan Genso

    Ben P @10

    Some people like “fairness” arguments, but I simply don’t find those persuasive, saying someone should pay their “fair share” is meaningless because all it really means is you think they should pay more than they do. There’s no universal definition as to what “fair” means, nor any way to measure it.

    I absolutely agree that subjective arguments about what’s “fair” economic policy should have little impact. But when discussing taxing different types of income at different rates, I think Area Man @12 has the correct argument that ignores what’s “fair”:

    By taxing different activities at different rates, you introduce a distortion that can lead to people doing things that are less productive but leave them with more money.

    I think economic arguments should be framed based on: what’s most efficient, optimal growth, most sustainable, etc (objective criteria where reasonable disagreements are still likely to occur).

  15. 15
    daved

    Ben P writes:

    A very substantial part of a growing healthy economy depends on the wide availability of investment capital, whether it’s loans from banks or other financing methods. An economy where businesses cannot grow or expand because they cannot obtain financing to build a new factory or buy new equipment is a very sluggish economy. We want people who have capital to be willing to invest it, and there’s a valid argument for incentivizing capital gains in order to encourage more investment. This keeps loaned interest rates lower and allows the economy to stay mobile.

    That does not refute my earlier point. The buying and selling of stocks, aside from new issues (e.g. the recent FaceBook IPO) has nothing to do with businesses raising capital. It’s more like stamp collectors selling stamps to each other, in the hopes that the stamp you just bought will become more valuable over time. Even the division of gains into long-term and short-term is completely arbitrary. I’d argue that these gains should be treated no better than gambling winnings or losses (and I speak as someone who is into the market).

  16. 16
    flex

    Ben P writes at #13,

    The number you really need to look at to make that determination is effective tax rates.

    Well, that is a nice chart, but it starts at 1979. So it does nothing to invalidate jacobfromlost’s point that the top marginal bracket is lower now that is has been in the past 60 years.

    In 1979 that top marginal tax rate was 70%, and “earned net income” was subjected to a maximum tax of 50%. “Earned net income” (in quotes because it is a technical term) means that after progressing through the various tax brackets, if the total amount paid in tax reaches 50% of your total income, the rest of your income is taxed at only 50%. Which, when you consider that even within the 1% for the time you have people who didn’t reach the top bracket, having an effective tax burden of 37% is not unlikely.

    The 91-92% top marginal tax rate was in effect from 1951 through 1963, arguably the period which saw the largest rise in middle-class income and largest expansion of the economy. There appears to have been a cap on total amount paid as well, but at 87% of total income.

    I would love to see a chart showing the historical effective federal tax rate back to 1945. As it is, the numbers in the chart from your link are fairly close to the effective maximum tax rate for the period.

    Which means that the chart you reference really cannot be used as a refutation of the information jacobfromlost provided. In other words, both charts are good but they are saying different things.

    Jacobfromlost’s chart is less informative because it lacks the details of maximum total tax rate (the notes on the chart do indicate this). This additional information for those periods is available if you go to the IRS website.

    The chart you reference is not at all informative for any period before 1979, when the maximum amount of tax anyone had to pay was 50% of total income even though there was a 70% bracket. Which says nothing about the period from 1951-1963 when the highest bracket, and maximum amount anyone had to pay, was around 90%.

  17. 17
    tacitus

    I thought this was going to be about the Daniel Tosh incident.

    OT: since this is being widely discussed in the liberal blogosphere at the moment, and given that Ed is himself a stand-up comic, it would be interesting to hear his take on where he would draw the line when putting down a heckler.

  18. 18
    Michael Heath

    Area Man writes:

    Beyond that, there is no economic justification for taxing capital gains at a lower rate.

    All my relevant econ and finance classes falsified this assertion, with math. The cost of capital and the liquidity of capital have an enormous and measurable impact on investment choices. Choices which are now global.

  19. 19
    kagerato

    @18:

    What math? And how can mathematical models answer an empirical question? That’s the entire flaw of economics; everyone constructs a model that fits their premises and expectations without ever bothering to scientifically demonstrate that any of those premises were true to begin with.

    How can the capital gains tax have a great effect on cost of new capital to begin with? This seems to assume that a very large percentage of capital comes from dividends or sale of stock.

    Liquidity is even more dubious. The tax rates have no impact on liquidity; they only affect yields.

    Can you show, empirically, that low capital gains tax causes substantially greater investment in new businesses and/or notable job expansion in existing businesses on the macroeconomic level? That’s the argument Republicans constantly present; that they (the rich) are the job creators and cutting taxes is the panacea to all our employment woes. All of the data I’ve seen on the matter does not demonstrate that in the least.

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