The Rich & The Taxless

Derek Thompson tweets that 7,000 families making $1m or more a year did not pay any income tax. Which sounds pretty damning. Given the existence of the AMT, though, I wonder how they got away with it? It’s less damning, it seems to me, if they did it by putting it into an account that they will later pay taxes on. For instance. It’s iffier if they avoided paying taxes because they got rebates for being Good Citizens, however defined through incentives thought to be a good idea. It depends on the incentives, I’d guess, though I am still inclined not to look on it favorably.

Of course, what makes me grit my teeth is that these factoids become used to advance the notion that the rich are not “paying their fair share,” which in turn becomes an argument for raising taxes on the wealthy. Given our deficit, and our financial obligations, I don’t oppose raising the taxes on the wealthy. I think everyone’s taxes will need to go up, but particularly the wealthy. But the main problem I have with using this data as the rationale is that you are effectively saying “Since Person A didn’t pay enough taxes by way of hiring all the right tax lawyers, Persons B-E should pay higher taxes.”

To the extent that it’s used simply to advocate closing whatever loopholes are being exploited, I’m supportive. But that’s why the specifics are so important. Why aren’t they paying tax? Will they be paying taxes in the future?

Will Truman

Will Truman is the Editor-in-Chief of Ordinary Times. He is also on Twitter.


  1. This, in turn, is a good slice of why reducing political analysis to 140-character tweets is simply not a good way for us to govern ourselves. Derek Thompson’s tweets may be good attention-getters, but tax policy turns out to be really complex (because the tax code is really complex) and reducing it to gross generalizations like “Tax the rich, they can afford it!” or “The rich already pay 95% of the total freight!” isn’t really going to solve anything.

    In theory, we tax “income,” which is broadly defined as something of value moving in to a family unit. But then we exempt out a whole bunch of things of value — including things like cash — as “not income” for any of a number of reasons, many of them very good reasons. Then we allow “deductions” to reduce the tax liability on the “income,” and somehow after a lot of accounting that get geometrically more complex as the taxpayer’s asset and income stream portfolios become more diverse, we raise money for the public fisc.

    These aren’t scare quotes, by the way. They’re Inigo Montoya quotes, as in, “You keep using that word. I do not think it means what you think it means.” My complaint here is that “income” for purposes of income tax isn’t what most people understand the word income to mean. That isn’t supposed to scare you into disliking “income,” but it is supposed to irritate you that this issue is more complex than it needs to be and therefore less efficient than it could be.

    While our existing system is great for certain specialities of lawyers and accountants (who I will stipulate are all very very nice people), I think we all can agree that capital has more productive uses than them, and that these professionals have better things to contribute to society than obscuring the government’s view of their clients’ income streams.

    Better that the government not care about their clients’ income streams in the first place. That’s why for a couple of years, I’ve held a just-a-tad-warmer-than-lukewarm support for the idea of taxing “consumption” instead of “income,” because what we are not ever going to be able to really tax is wealth. If you have static capital, that isn’t taxed under an income tax system and it isn’t taxed under a consumption (that is, sales or value added) tax system. I would only get behind such a system, however, if it replaced rather than supplemented the existing income tax.

    Of course, if you say the words national sales tax, that doesn’t need scare quotes because a large segment of people are so scared of the idea that they simply shut down and won’t even listen to the proposal. I’m confident that an appropriately-set and appropriately-exempted (or possibly prebated) national sales tax wouldn’t kill our economy if a typical taxpayer didn’t have to also pay income tax along with sales tax.

  2. My main concern with a national sales tax is the regressive nature of it. I haven’t yet seen a sales tax model that effectively tackles this.

    • Mail everybody a check to cover “reasonable” sales tax on reasonable purchases every October or so.

      This can cover the amount of tax a person can expect to pay on milk, Sunday clothing, educational materials, and sensible footwear.

      • I’ve thought about using sales taxes for redistribution, but it kinda becomes harder to do when we’re so far under water as it is. How high would the sales tax need to be?

      • “Mail everybody a check to cover “reasonable” sales tax on reasonable purchases every October or so.”

        You’d still require people to maintain larger capital reserves in order to cover unanticipated purchases.

        Their paychecks might go up but they’d be required to keep more of it in savings, leading to no net difference.

        • Maybe we could set up an office dedicated to helping people with unanticipated purchases. Provide waivers on a case-by-case basis.

          It would create jobs.

        • As opposed to an income tax system? People need capital reserves in that system too, for the same purpose. I don’t see how a shift from one system to the other would affect creditworthiness for those who lack the capital.

    • I’m sure you’ve looked at the “prebate” system; Jaybird mentions it above.

      Now, the reality is that there are some people who would take the prebate money and foolishly spend it immediately on one thing (big screen TV’s) instead of wisely conserving the money and parcelling it out for those necessary purchases (food). I could be a heartless libertarian and say that they have to live with the consequences of their foolish decisions; I could be a micro-economic realist and say that all those purchases come out in the wash anyway.

      What I would really prefer to see is several smaller payments (biweekly or bimonthly payments seem better), disbursed electronically to a bank account as happens with social security and general welfare right now. The amount of the payments we can quibble over. The big picture is that the sales tax to be paid on a corpus of commodities reasonably necessary for survival would be prebated. Doesn’t that take the edge off the otherwise-regressive sales tax?

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