“In a
time of rising inequality, I’m not sure the right answer is lowering taxes or
making them less progressive,” said Kim S. Rueben, senior fellow of the
Urban-Brookings Tax Policy Center at the Urban Institute. “It’s more about
keeping an eye on people, seeing where they are and enforcing the tax rules.”
Sunday, May 1, 2016
The mega tax-payer dilemma
I found an interesting article about mega tax-payers that could possibly influence the state budget. The hedge-fund billionaire in New Jersey, David Tepper, earned more than $6 billion from 2012 to 2015. Tax experts say that his move to Florida could cost NJ millions of dollars in lost payments. Tepper's move shows how tax collections are affected when income becomes very highly concentrated. In states like New York and California with high tax rates, the top 1 percent pay a third or more of total income taxes, so even a single individual like David Tepper can have a noticeable impact on state revenues and budgets. Some experts say that each state should keep tracking and forecasting the incomes of the top earners and keep them from leaving.
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This is certainly a good point that my friends and I discuss often. If the U.S. attempts to increase taxes and pursue more progressive policies, then there's the fear of the ultra rich leaving the country and depriving it of tax revenue and possible business investments. My friends against higher taxes cite this as an excuse for conservative policy, however, I find this problematic.
ReplyDeleteThe U.S. wasn't always in this precarious situation, but we've allowed it to deteriorate to the point where many think it's impossible to go back to higher tax rates. Let's be honest, many peple regardless of their income will attempt to dodge tax payments, but the rich have the power to more easily avoid taxes. They can buy elections and influence policies to benefit them. They can hide large sums of cash in Panama. They can get up and leave the country with ease, so we're stuck at the moment and I'm not sure how we can get out.
A lot of this started when Reagan cut taxes on the wealthy. While I agree that the ultra-wealthy leaving the country could have a negative impact on tax income, there really isn't empirical evidence that the rich would leave the country if they were taxed more. It's similar to the argument for cutting taxes on the rich. It is often argued that the added income would result in more investment and thus create more jobs. However, this has been disproven in practice, as the wealthy are more inclined to save their money. The rich get richer. So it is problematic that this fear of the wealthy leaving i dictating policy.
ReplyDeleteReally interesting article. It never occurred to me that this was an issue for governments, but it does make a lot of sense that it is. I wonder if the state would be willing to negotiate a tax rate with him. This is yet another example of how the most wealthy individuals would be allowed to leverage their money for power.
ReplyDeleteI agree with Graham that the rich leaving the country for tax reason has no clear evidence. But the rich have clearly moved to other states for tax reasons, and this is a great dilemma for the states, whether to hold them in their current state, or to have more progressive tax and let them be replaced with other groups of rich people.
ReplyDeleteBut this all goes back to the fundamental problem of uneven distribution of wealth in the nation. Top 1% owns 40% or more of entire nation's wealth and owns more than bottom 90%; they pay one third or more of income taxes in certain states, like NY and CA.
How can this problem be "fundamentally" fixed? More progressive taxes in the state will make them move out of the state. So can there be anything done on the federal level, when there is a relatively low chance of the rich leaving the country?
There will never be any tax plan that will make everyone happy, even taxing everyone at the same rate. People will always be upset about taxes until there aren't any. So, when creating tax policy one party will always be upset. I don't think this problem of avoiding taxes of having the rich upset about taxes will ever be fixed. The Federal government cannot do anything about people moving states. This will not happen to everyone but unfortunately this is inevitable. The government needs tax revenue and I think they are just trying to get the most money as possible.
ReplyDeleteI agree that this is a really interesting article, it makes sense for this to happen. There is no way to make everyone happy with taxes, no one likes them! but i agree that they are necessary to fund a state and the nation.
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ReplyDeleteI think one part of tax policy that often gets ignored is the culture. I think a tax increase in the US would lead to much more use of tax havens and minute details in the tax code to avoid paying taxes than most other developed countries. We have a greater perception that we deserve the money we make than a lot of European countries, and that is important to consider.
ReplyDeleteThis is definitely a tough spot for individual states to be in. Obviously, it's nice having those billionaires around to collect their millions, but you also can't blame them if they decide to move to another state where they'll have to pay less taxes. People of all income levels will do what they can to hold onto their hard-earned dollars, because like Spencer mentioned there's a culture here that we deserve to keep everything we earn. Personally, I think the tax code needs to be drastically simplified to eliminate loopholes and evasion maneuvers that are only really available for those who are extremely tax-savvy (or wealthy enough to hire people who are). I think a lot of this stuff can be avoided if the system was simple enough for an average adult to understand, so it would be easier to tell when people are taking advantage of the system.
ReplyDeleteI never really thought about this on an international level but I know domestically it can be a large issue. Other than cutting taxes on rich, I think another potential solution would be make income tax levels a similar amount throughout the country, this would possibly discourage people to moving states just to avoid taxes. If income taxes were cut slightly in some states and increased in others, then domestically I don't think people would be moving as much to tax free states such as Florida and Texas.
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