Paul L. Caron

Tuesday, March 15, 2011

How Much Money Do the Rich Have?

National Review, How Much Money Do the Rich Have?, by Robert VerBruggen:

My colleague Kevin D. Williamson has a piece today about how hard it would be to close the $1.1 trillion budget gap by taxing “the rich.” I spent some time this weekend going through more detailed IRS data, and they support his conclusion.

Liberals believe, more or less, that once someone’s income reaches the “rich” threshold, they have little right to keep any additional dollars they make. Starting with that assumption, I set out to find how much “extra” money people really have. You can see my results here.

The best numbers I could find came from IRS returns in 2008. ... [T]he cutoff the IRS uses is $200,000. ... The first question is: How much do these folks make in total? The answer is about $2.5 trillion. If we wanted, we could stop here: You’d need to grab almost half that to finance the deficits Obama’s talking about.

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Woody, I agree you cannot balanced the budget on taxes along, you agree, everyone agrees. So why waste time and resources writing about it?

Posted by: Sid (real one) | Mar 18, 2011 4:58:03 PM

Sid, the conclusion of the article is that you can NOT close the deficits with taxes from "the rich," as you would have to tax every couple making $250,000 or more at 110% of their income to close the deficit. It's going to take taxing everyone and/or cutting spending. What's wrong is the huge percent of people who pay nothing yet clamor for more taxes on those already being ripped off.

Posted by: Woody | Mar 16, 2011 6:07:26 PM

Nick is correct, which is why the effective tax rate on high income individuals, which is the only rate that matters is in the mid 20's as a percent of income.

As far as where I got my quotes from, well, the idea that liberals do not want the rich to have any more money after a certain level is in the post on this site, and the idea that you can close the deficit by taxes alone is the concept of the research cited.

Finally, Nick, if you find the answers to your last two questions, please post, I'd like to know also.

Posted by: Sid (real one) | Mar 16, 2011 11:42:01 AM

First of all when you are looking at returns you are looking at "taxable income". When I work with the ultra rich, most of the gains in net worth is 'non-taxable" such as municipal bonds or annuities. Second, the reported gains in companies they own is not shown on the data. Third, the asset based increase is not shown on the data. Finally, it is a start to tax upper income people while reducing spending at the same time. My real qestion, why do morons like this write articles? And why am I stupid enough to read them?

Posted by: Nick Paleveda MBA J.D. LL.M | Mar 16, 2011 9:06:46 AM

I think that we're going to see some incredible inflation, so the government can look forward to paying off the debt faster with dollars worth half of the amount that it borrowed.

Posted by: Woody | Mar 16, 2011 7:28:54 AM

Left out of the conversation is the fact that a large component of the present deficit is the state of the economy. With employment and growth rates at normal levels, a large part of the deficit is gone. To address this we will have to behave like rational adults (I know I have unreal expectations for politicians and unelected ideologues) cut some spending, raise some revenue and see the economy return to normal. The biggest pain for some will be behaving like an adult in embracing all three in thinking about the issue right now and in the future.

Posted by: Bill | Mar 16, 2011 6:28:38 AM

What is important is that taking 50% of of money earned by the rich beyond a certain marginal tax bracket would cut the deficit in half. The rick get the benefit of the 0%, 10%, 15%, etc. etc. marginal tax brackets on the first dollars that they make. The rich would not be taxed on "everything" rather the 50% rate would only apply to income above a certain level (income below that level would be taxed at the lower marginal rates). And it is better to cut the deficit via taxes than do nothing.

Now, I agree that taxes alone are not a panacea. An ungodly amount of pork is spent each year. Sadly, politics trumps deficits. "Bringing home the bacon" is much more important to politicians than cutting spending--especially spending in their own district/state. The whole "starve the beast" mentality/theory is a farce.

It really is simple: raise taxes; cut spending. And it is really hard because it involves raising taxes and cutting spending.

Posted by: tax guy | Mar 15, 2011 9:54:19 PM

Sid, not only can I not cite the sources, I can't even find the quotes that you provided. What's important in the provided article are the calculations that show that taking everything(!) that "the rich" earn still isn't enough to cover the deficit.

There's a point at which taxes are high enough. Make them too high, and people are going to quit working. I've had clients tell me that they will stop when over half goes to the government. Obama and Congress have been like a wife who spends everything that you make, so you work harder and longer hours and finally say, "What's the use?" and give up.

Posted by: Woody | Mar 15, 2011 7:20:44 PM

Can someone please cite the source of the following.

1. Serious policy analysts who have stated and supported with data the position that the deficit can be erased solely by taxing the rich. The deficit commission and almost everyone else qualified to discuss the issue have all stated that the deficit can only be erased by a combination of tax increases and spending reductions.

2. Serious "liberal" analysts, office holders or politicians who have stated that once someone's income has reached a certain level they have little right to keep any additional dollars they make. Repealing the Bush tax cuts for the highest income taxpayers would still have allowed them to keep about 60% of marginal income.

It is pretty easy to have a winning position in an argument when you argue the position of both sides, or as it is commonly known, the Rush Limbaugh Intellectually Cowardice Method.

Posted by: Sid (real one) | Mar 15, 2011 1:58:24 PM

A 50% marginal tax rate is way low compared to historical figures.

Posted by: . | Mar 15, 2011 1:01:33 PM

For "the rich" to cover federal deficits, they'll have to give 110% -- literally.

Posted by: Woody | Mar 15, 2011 12:50:37 PM

Better to "grab" half and cut the deficit rather than let the rich keep dollars of diminishing marginal utility, let the deficit soar, or burden the backs of the middle class instead.

Posted by: tax guy | Mar 15, 2011 12:31:43 PM