The Rich Don't Pay Taxes: Myth Debunked

[orion]

[quote]Bill Roberts wrote:
It’s the same logic as would be, employed person’s don’t pay any income tax, their employer pays it.

But even less so since, due to forced deduction, most or all of the amount due actually does get sent out by the employer. But it’s money that, had the person not owed income tax, the person would not have had to pay. To say that he isn’t paying any personal income tax, the employer is, would be just foolishness.

Funnily enough, many of the same people that say “corporations don’t pay corporate income tax, their customers pay it” also say “Your employer doesn’t pay the so-called employer’s share of Social Security: that is your money, you are paying it.” Quite the double standard.
[/quote]

Why. Just another case where someone actually pays the tax and another hands it over to the government.

This case is actually much easier than corporation taxes because noone can pay you more than you produce for him without going broke.

It is a logical necessity that those costs also come out of the employers productivity.

Getting back to the corporate income tax, an idea that consumer prices would be, but for the corporate income tax, that much lower is very naive.

Any well-run corporation prices its product where the product of the number of sales and the difference between price and marginal cost is the greatest value possible, or at least where they think that is the case. I am speaking of the simplest case where the plant is already in existence and changing the overhead to be in accordance with anticipated sales volume is not in consideration. Including that consideration does not fundamentally change the question at hand, though.

Let’s say an executive comes back from a trip and announces that he’s just, thanks to wining, dining, schmoozing, and just the right contribution, obtained a tax break that will save the company – either just this company, or everyone in the business, either way – their entire corporate tax obligations, thus no corporate taxes will have to be paid this year. This doesn’t suddenly make it more profitable to lower the price of the goods sold, does it now, let alone equally.

No, but he can only pull that off because all other industries still “pay” their taxes.

Or if taxes are suddenly increased, that doesn’t mean price will necessarily be increased. Price should have already been set at the level producing the greatest revenues for the existing fixed costs. (If the tax increase forces selling a plant, though, or otherwise downsizing, then price might increase, but not necessarily by an amount equal to the tax.)

Now, long term, having profits taken away by taxation results in less capital investment, which may well mean marginal costs will not be lowered over time as they might otherwise be, and so yes, the taxation does in the long run cost consumers. But not necessarily exactly the same amount.

Yes and yes.

That just goes to show how unfair the system really is.

Less capital accumulation also costs them jobs and income. They not only pay once but several times, in small increments.

If for example a company is considering building a new billion dollar plant, and decides that they want to go ahead only if that plant will generate so many millions in additional net revenue, let’s say that projections show that somewhat more than that would be generated, and fortunately there are no taxes. The plant will be built, and due to greater supply price goes down for consumers.

But wait – the taxes are such that the added revenue, minus the taxation, now makes it not worth building that plant. So supply doesn’t go up, and consumers do not receive the savings that would have happened from that. So yes, consumers do suffer a cost, quite a lot of cost, from corporate taxation.

But they don’t pay the tax. The persons actually paying the corporate income tax are – what a shock – the shareholders of the company. They are the ones definitely and positively out that exact amount of money.

Not really, because those people have a choice. They can easily invest in another company or even country where corporation taxes are lower or non existent.

That is exactly why consumers ultimately pay those taxes, they cannot run away, money and capital can.

[quote]
But I guess this doesn’t make as good rhetoric for those either calling for abolishment of the corporate income tax or – on the other side of the fence – wanting to say “the rich” pay little to nothing in taxes, as does the simplistic statement that “corporations don’t pay corporate income tax, consumers do.”

However that entire subject is a sidetrack having really nothing to do with the thread topic that the top 1% pay an enormous share of the total tax burden, and the remaining 9% of the top 10% also pay utterly through the nose.

Perhaps better than the above is a simple example. Ford Motor Company has both had years of making billions in profits and owing a billion dollars or more in corporate income tax; and years of having no profit and owing no corporate tax.

When they found in a given year they were making a nice profit, did they then say, “Oh wait! We are going to have to pay corporate income tax, so: add so many hundred dollars to each car’s price.” No.

If they had thought profits would be better at the higher price anyway, the cars would have already been at that price. They weren’t, because raising price from its optimized point (or attempted optimized point) would reduce profit.

Rather, the taxes owed now do not go to the shareholders as dividends, and/or do not go into investing in capital improvements, which the shareholders would own if it occurred. The people out the money, or the improvement that could have been made in the company with that money, are the shareholders. The consumers didn’t necessarily see and probably did not see a raised price at all as response to it being discovered that a profit was being made this year and therefore corporate income tax would have to be paid.

But, “corporations don’t pay corporate income tax, consumers do” is one of those pieces of rhetoric that will not go away, as – unusually – it serves both these that would consider it productive to the economy to lower these tax rates, and those who like engaging in class warfare. Can’t beat that I guess.[/quote]

I do not know why you believe that corporate taxes and pricing of products are so intimately related.

It is more like this:

If you cannot build cars at competitive prices in the current tax environment you go broke. In the real world this is not either or though.

Ultimately the consumer will just get less car for his money. He gets the Ford whatever instead of the Jetson air car. That is also a hidden tax on the consumer.

As to class warfare, I do not care if corporations pay taxes or not, they just don’t. I also do not care whether the “rich” get taxed or not, they just aren’t. When Buffet complains that pays relatively less tax than his secretary that is telling. Not that I believe that he should pay more, she should pay less.

[orion]

[quote]Bill Roberts wrote:
OK, let’s for a moment stipulate that you’re right, the matter under discussion SHOULDN’T be what the OP presented it as and what everyone else but you and Lifticus was discussing – about what the top 1% or about a million Americans are paying – but SHOULD be about what percentage of their increase in wealth a few thousand of the super-rich are paying.

Which no one was denying in the first place is a fairly low percentage.

Now, in light of the fact that the political issues at hand are tax increases on people such as the top 1% and the top 10%, whom the politicians and media call “rich,” you find it a more important issue that the super-rich don’t pay enough (if you even think that), rather than that the people actually being talked about are already very heavily taxed and yet the endless parrotting is that they “don’t pay their fair share” and the issues at hand are increases on them, not the super-rich?

I don’t know about your position, but Lifticus’ one, if I understood one of his posts correctly, is that the super-rich ideally wouldn’t be taxed at all. And I doubt your position really is that in an ideal society they should be taxed more heavily than they presently actually are.

So exactly why do you turn the discussion from the relevant one, to one that isn’t even relevant to you in terms of what you think important?

Unless I’m wrong and actually you are deeply distressed that the super-rich don’t pay a high percentage, while feeling that there’s nothing wrong with Obama’s tax increases hitting professionals and small-business owners and others of similar income that, to the American media and politicians, qualifies them as “rich”?

On your argument about words: It is about as useful as – there is absolutely no intent to cause harmed feelings or to suggest that taxation is as bad as internment and death, it is not – a person in Nazi Germany whom Hitler and persons in general in Germany would classify as Jewish, arguing that they are using the word the wrong way, he is not Jewish by his definition, and arguing that Hitler is wrong for what he is doing to the Jews is just ‘automatically accepting their definition’ and thus the person rejects all arguments about the wrongness of what Hitler is doing and insists he isn’t included.

When in fact they are coming for him.

(I would rather use another example but at the moment can’t think of an alternate one where the government defines a class of people they are going to go after in any way, and there could be argument about the meaning.)

When the politicians and the media call the income level “rich” that they do, and someone starts a discussion that is PLAINLY about the top 1% not the top 0.001%, for you to insist that they are using words wrongly and therefore really the dogma in question is correct is just sticking your head in the sand. And you are the one acting to support their propaganda.

The issue in America – but you’re not here and you don’t know – is class warfare defining very ordinary people as being “rich,” claiming they don’t pay their fair share, and ginning up votes from those making less and raising money for government programs by promising to take yet more from these very ordinary professionals and small-business owners and others with rather ordinary, though better than average, incomes.

But instead you think it’s more important to talk about whether such as John Kerry pay a high percentage in taxes, when NO ONE DISPUTED IN THE FIRST PLACE THAT THEY DON’T.

And when the politicians say the “rich don’t pay their fair share” and that they are going to increase taxes on “the rich” they don’t mean John Kerry. You are answering to something that is not the issue on the table. Not remotely the issue.

So what exactly was the purpose of your and Lifticus’ posts except to show thatyou read a book, or that (in your own mind anyway) you know more about American taxation, without ever having even seen a single IRS form let alone had to file U.S. taxes, than does an American accountant?

I just can’t see the purpose, besides those.[/quote]

Jews are actually a good example because it was quite arbitrary what actually a “jew” was. Therefore Goerings quote " was ein jude ist bestimme ich". Meaning, it was up to him to decide who was a jew and who was not.

The idea is that it is useless to look for any kind of “fairness” in a system that already does not tax the mega rich and shuffles money around in the middle class to buy political favors.

And I have not even started about subsidies that actively benefit companies.

I am also not against taxing the rich, because if you did that you would hurt the last people who actually save money which, contrary to the current mainstream opinion, is quite important for an economy.

I just refuse to concentrate on the splinter in someones thumb when his whole body is cancer ridden.

[orion]

[quote]erik-the-red wrote:
orion,

So, let’s recap: you believe that absent information about personal assets, the top 1% of all income-earners are actually middle-class because they are still income-earners (c.f. Teresa Heinz Kerry). Moreover, you believe that because a corporation derives its revenues from consumers, and the so-called “corporate taxes” are taken from these revenues, the corporations didn’t pay any of the taxes; the consumers did. Finally, as a related point to the first, you believe that the truly rich, defined as people who don’t work for money but rather have their money work for them, aren’t paying much in taxes.

For the first point, it’s a definitional issue, and thus not worth arguing over. There’s nothing “wrong” with your definition. Richard Kiyosaki, author of Rich Dad, Poor Dad, would certainly agree with you that as long as you’re working for money, you’re middle-class, even if the money you work for comes out to be quite a high amount.

For the second point, really and truly, you haven’t said anything wrong. This perspective is overflowing with liberal bias, but it is still technically correct.

For the third point, I’d like to say a few things. First, going back to the Richard Rahn (Cato Institute) article, assuming that the second family represents a family that did not benefit from any inheritances, did it occur to you that in order to amass a net worth of $7 million, you probably had to have earned a substantial income for many decades? Thus, wouldn’t you agree that it’s extremely likely that before this family became truly rich, they were middle-class? Again, assuming no inheritances, this is a straightforward consequence of the Intermediate Value Theorem. Second, do you have a source on how many people in this country are like Teresa Heinz Kerry? I promise you that the overwhelmingly majority of our country can’t have her asset allocation strategy and survive.

Orion, what kind of tax system do you support? You seem to be against corporations’ “not” paying taxes and against the truly rich’s ability to avoid taxes. (By the way, tax avoidance is completely legal.) On the off chance that you support a tax on wealth, may I remind you that your Richard Rahn source is highly critical of that idea?[/quote]

I am very free floating about all of this, I have no “liberal bias”, I do not care.

I am just pointing out that if government needs more than a certain amount of funds it necessarily needs to get it from somewhere. That “somewhwere” is usually people who cannot legally avoid to pay taxes.

So you can either have big government or relatively fair taxation but not both.

[orion]

[quote]countingbeans wrote:

lol, the language you use is very important.
[/quote]

I know.

Which is why I call taxes legal robbery.

[orion]

[quote]Bill Roberts wrote:
Obviously the below is subject to correction by Orion as to whether it fairly represents his positions. It is only what I have gathered from his posts.

I agree with you that he disagrees with the definition of “rich” as including people such as professionals, small-business owners, and others with a combined family income such as $275K per year.

So do I.

Politicians and the media are doing this as class-warfare and to justify tax increases on such quite ordinary people, albeit with above-average incomes. Because the average voter they are catering too wants tax increases on “the rich.”

And the average such voter is probably so careless a thinker that when he hears the politician is going to raise taxes on “the rich” and only on “the rich,” he has no idea this means his doctor, five of his neighbors living on the same block, the owners of many of the small business he buys from, and the owner of the small business he himself is employed by.

However the thread was plainly about the top 1% that these politicians call “the rich,” on whom the tax increases are planned, and who are claimed to not be paying “their fair share” already. Not on the John and Theresa Kerrys of the world and their like that Orion wanted to talk about, but of whom no one was disputing that they pay a relatively low percentage.

Yes, Orion is convinced that since corporations derive their income from their consumers, therefore the consumers pay the corporate income tax and the corporations pay nothing, regardless that money is now not available for payment as dividends or towards capital improvements, paydown of debt, or anything else that, if not for the tax, would benefit the shareholders. I am sure he will next tell us that since I derive my income from Biotest, therefore I pay no personal income tax. That is news to me, but clearly is true to Orion. In a literal sense there is truth to it – that is where the dollars came from – but in the practical reality of whether I am out anything or not, it would be absurd nonsense if claimed. But it is precisely parallel.

No, I don’t gather that Orion is against corporations “not” paying taxes or that he wants them hit financially in some way that they now are not.

I also don’t gather that he is against the actually-rich being able to preserve much of their gains in wealth from taxation, or that he supports a tax on wealth.

It seems to me generally that Orion has philosophical points that he wants to make, and is consistent in these points. It’s just that sometimes what is actually going on in America and is being discussed, doesn’t match up with his intellectual model of it (not actually being in America).

Thus for example having a model that a couple earning a combined total of just over $250K can’t be called rich, therefore the discussion cannot be about whether they don’t pay “their fair share” as widely claimed, therefore the “myth” in the title is actually right not wrong, etc.

But the fact is, such ARE categorized as “the rich” by tax-raising politicians, and such ARE widely believed to “not be paying their fair share” and that is a big part of why voters put into office politicians promising to raise taxes on these people, while having no plans to raise taxes on such as John Kerry.

So while satisfying his theoretical model, in practice his arguments on such things don’t apply. It does no good to insist that the super-rich do pay a low percentage in taxes, when we already knew that, no one disputed it, and it isn’t the topic of discussion. Except for satisfying an intellectual model that differs from what is actually going on, in practice, in America, the country being talked about.[/quote]

That pretty much sums it up, but those “philosphical” points are actually pretty important.

Since Keynes a lot of economists think that they can sidestep the philosophical points of economics and treat it as a social science with graphs and correlations and what not.

I have met PHDs who refused to see that supply and demand are two sides of one coin. They also had no idea of what value was or what the limitations of their ideas where.

For a practical example, the cash for clunkers program is a giant broken window fallacy. It destroys wealth to boost the GDP. These “economists” do not even get that the GDP is simply an instrument that has its limits, they trust it without understanding it.

So I put forward that economics is a philosophical discipline first and foremost and that ignoring the philosophical aspects of it because it is just a waste of time produces the second rate dolts in the Obama administration.

[orion]

[quote]jsbrook wrote:
Ok, so I read this Elasticity article. Orion, remind me again what proposition you were citing this article for. Because, by all accounts, it was about behavioral responses to taxation. And said nothing about what percentage of real income people are paying in taxes in various tax brackets. Except for one small throw-away line about the ability to shelter income for some. Something I already mentioned. Moreover, this is a very poor article as well. In 78 pages, it did a very poor job of explaining WHAT the actual behavior response is to changes in taxation.[/quote]

What is clearly shows that “taxable income” is very “elastic” concept. Meaning, a large part of it simply disappears when you try to tax it.

How those people do it is irrelevant really, the point is that they measurably do it on a very large scale.