San Diego Housing Bubble News and Analysis

There is a reason tax hikes never bring in the predicted government revenues touted by their advocates. The politicians use static analysis, which assumes people will not change their behavior when their incentives change. A 10% hike in tax rates is supposed to generate a 10% increase in tax revenues.
In reality, people respond to incentives. The rich can work less, invest differently, hire a more creative accountant, move to a lower tax state (or nation), substitute leisure for work (e.g., europeans), etc.
Taking changes in behavior into account in predicting the impact of changes in tax rates is called dynamic analysis, and is infinitely more accurate historically than static analysis. Of course, tax-raising politicians do not want to use it. Nor does the Congressional Budget Office (CBO), which is famous for being wrong in their predictions.

Just so you know, people who make between $100K-$400K a year are not "rich", at least according to the people who engineered the Bush tax cuts. I want to see the statistics for those making $5M a year and up. You can bet that they are paying a lot less than they used to. This article exploits one of the most powerful weapons in the class warfare arsenal, making the middle class think that they are "rich" just because they can afford a house in a decent area and they drive a Lexus. The $100K-$400K/year range is decidedly middle to upper-middle-class, and it's no surprise that they are the people who pay the most tax. Third world countries like the US and Mexico always extract heavy amounts of tax tribute from their middle class workers. As the middle class shrinks because of predatory capitalist policies, they pay more and more tax to finance the social programs that prevent the starving masses from revolting and eating the super-rich. Expect this situation to get much much worse.

Here we go again on the definition of "rich" means.

Something smells here; I don't buy the argument. The artical under review ends with this quote:

"The way to soak the rich is with low tax rates, and last week's IRS data provide more powerful validation of that proposition."

Are we to conclude that the rich, with all the economists they want to hire, all the politicians they want to support, all the media they own, i.e., those that wanted the tax cuts and likely helped design them, raised their own taxes for the good of the rest of us! I think not. Somehow, and I don't know how, wealthy supports of the president benefitted.

The definition of "rich" is the key to understanding how the super-wealthy soak the middle class to prevent the huddled masses from having a revolution and marching them all off to Le Guillotine. The definition of "rich" depends on who you are talking to:

Actual Super Wealthy Person: "Rich" means having several million invested and the majority of your income coming from passive investments. "Rich" means that your wealth and livelihood are isolated from political and economic events.

Middle Class Person: "Rich" means owning a couple of houses in nice parts of the country, taking fancy vacations and staying in nice resorts, having your kids in private school, and owning a 7-series BMW. Some day I hope to be rich, like my neighbor Mr. Jenkins, the attorney.

Poor Person: "Rich" means anyone making more than $100K per year (Note: this category probably includes the reporter that wrote this article!)

Articles like the one in the WSJ are designed to convince people in the second and third category that people in the first category don't really exist, and if they do, they're not important enough to worry about. The actual wealthy people that design things like the Bush tax cuts, the medicare giveaway and the Bear Stearns bailout stay hidden in the shadows while pitting the middle classes against the poor. There is a reason that whoever financed this study picked those particular income levels. Had they picked a higher income level (say $1M/year or higher), you can be guaranteed that the results would have said something very different, namely that the Bush tax cuts have generated a huge windfall for the people in category 1.

The "new rich" those that were born with nothing got rich by working hard. You can't get rich starting from nothing without busting your ass.

When rich people get incentives it causes them to work harder, not less.

People who work for others have no way of understanding this.

The data is what it is and the data shows our system punishes the most productive members of our system.

John

[i]Had they picked a higher income level (say $1M/year or higher), you can be guaranteed that the results would have said something very different, namely that the Bush tax cuts have generated a huge windfall for the people in category 1.[/i]

The other point that is ignored is the fraction of national income going to the top few percent of percent.

Rich are paying much of the income tax because they are making far more of the income. No other tax is progressive --- state income taxes are usually close to flat at that level, and consumption taxes are naturally regressive, likewise SS and FICA.

They are capturing all of the productivity gains and GDP increase. Real median income per person has been flat in the Bush "expansion", and has hardly moved since 1980.

Suppose the DJIA were at the same inflation adjusted (and dividend adjusted) place since 1980. Don't you think the Bush classes would be screaming?

It used to be that both the owners and workers benefitted alike from the increase in productivity from capital investment and technological progress. Now? Only in China.

When did this horrible phrase "wage inflation" pop up in normal discourse? Why not "salary increases"?

There is propagandistic wallpapering that goes like "oh normal workers have stocks in their pension and 401k". Sure, how much? How much of their total lifetime income comes from *returns* on stocks (not capital invested) versus working for a living? It's quite small. They'd benefit far more by making more money.

The "new rich" those that were born with nothing got rich by working hard. You can't get rich starting from nothing without busting your ass.

Sure, no one here is arguing otherwise. If you start with nothing and want to become rich, you're going to have to work hard, especially considering all of the taxes you're going to have to pay on your way to the top.

When rich people get incentives it causes them to work harder, not less.

Again, it depends on your definition of "rich". The only truly rich people earn all of their money from passive investments, so they're not doing any productive work anyway. Give them tax breaks and they'll continue not working -- they'll just make more money doing it.

People who work for others have no way of understanding this.

What does that have to do with anything?

The data is what it is and the data shows our system punishes the most productive members of our system.

I agree 100%. What the data show is that the middle and upper-middle classes are carrying more than their fair share of the load, and that their load is increasing. Note that you won't see any WSJ articles like this that look at the statistics of those whose income is derived from passive investments rather than productive labor, because it would show a very different picture; one of the main reasons that the WSJ exists is to make sure that we don't get to see that picture.

"People who work for others have no way of understanding this."

"What does that have to do with anything?"

It has everything to do with it because the vast majority of whining Libs work for others and have no apperication for what it takes to have your own business and get ahead. They are always looking for someone else to pay for needless government crap.

The data clearly shows the rich get raped. How you could see the opposite is interesting but not surprising.

The top 50% pay 97& of the tax. Great system we have.

BTW, what is your definition of "productive" work?

John

The data clearly shows the rich get raped. How you could see the opposite is interesting.

John, see my earlier post about the way the definition of "rich" changes depending on who you're talking to. You're using definition 2 of "rich" which actually means middle-class to upper-middle-class. By that definition we are in agreement, those people are getting raped with taxes (and I'm in that group!) However, the people that run the show, the people who engineered the Bush tax cuts and the financial institution bailouts and on and on don't define "rich" in the same way, they use definition 1 (most if not all income earned through passive investment). They are saving tons of money with these tax cuts and we know that for sure by the fact that they're funding articles like this in the WSJ.

Oh, and here are some examples of what I would consider productive jobs:

* Entrepeneur/business owner
* Attorney
* Doctor
* Engineer
* Sanitation worker
* Welder
* Truck driver
* Soldier
* Waitress
* Professional athlete
* Artist/Musician
* Firefighter/Policeman
* Biotech scientist
* House rehabber/flipper/real estate investor
* Plumber

Basically, any actual job or profession I would consider to be productive work.

The objective of the tax code is to maximize revenue, not punish people for being productive nor reward those who are not.

John

Borat: I think what is being missed here is what we in accounting call the weighted average. The top 1% of earners in this country earn (or, more importantly, control) a staggering percentage of the wealth.

You very correctly point out that while the WSJ article discusses various earning brackets, it conspicuously avoids mentioning the very top percentage or percentages. Breaking the data into quartiles allows for some deft manipulation of the numbers.

I am an avowed conservative, but even I will admit to being infuriated when I see how those that occupy that stratum have ginned the system ruthlessly. Or as the Golden Rule says: "Those with the gold, make the rules".

Borat: You consider "musicians" to be productive workers?!? How come every girl's mother warns against dating them?

Oh...

The more jobs you create the productive your work is. Jobs that don't creat other jobs are not the ones that make people rich nor to they help grow the economy.

People who are the risk takers deserve what they get and paying 40 times their share in tax is not something they deserve.

Perhaps we shouldn't tax income, only assets. That way all the "old money" like John Kerry who only paid 10% income tax would be forced to pay their "fair share".

John

Allan, please explain how it avoids mentioning the very top percentage since it speaks to the top 1%.

Thanks

John

I am an avowed conservative, but even I will admit to being infuriated when I see how those that occupy that stratum have ginned the system ruthlessly. Or as the Golden Rule says: "Those with the gold, make the rules".

Hahaha, that's the real golden rule isn't it? I guess what really irks me the most is that these tactics are the same ones used in Central and South America to keep a few wealthy families in control of the whole show across generations. They exploit the high earning productive middle classes (including many entrepeneurs) with high taxes, and then they use those tax revenues to give sops to the poor (healthcare, education, housing projects, etc...) to keep them from revolting. Eventually they begin using those tax revenues to fund a police state to keep everyone in line. We are seeing the beginnings of this here and I don't see it getting any better. And of course they control the media so they use that to pit the poor against the middle classes while the super-rich float high above the fray...

Borat: You're preaching to the choir. I spent three years in Central America (Honduras, Guatemala and El Salvador) as a military advisor in the 1980s, so I got to see what you speak of first hand. In El Salvador, it was called the "14 Families", that group of oligarchs and their extended relations that controlled the country, economically, politically and socially. They did so with tacit US support, mainly because we felt the greater threat was communism. As it turns out, we were mostly right, but not completely.

Mexico, interestingly, falls into the same category. Most people see Mexico as a democracy, but the truth is that Mexico has been controlled by a similarly small group of oligarchs in much the same way. Look at Carlos Slim (the world's riches man) and how he controls the telecom industry in Mexico, with nary a peep from the country's "regulatory" bodies.

I posted on another thread about the Patriot Act and FISA. Scary stuff and getting scarier. You look at the NSA's capabilities when it comes to eavesdropping and you're in conspiracy theory land pretty quick like.

John, it avoids mentioning the TOTAL wealth controlled by that 1% and how much is paid in terms of TOTAL taxation on that wealth by that 1%. In other words, there is a glaring disparity on the respective rates paid by Scrooge McDuck (the top 1%) versus Joe Sixpack (the great unwashed middle class).

That was my point.

Allan, my point is its not the rates that matter. Its the amount collected and the stats show that the top one percent pay more then they have in 40 years.

What has happened in country is the super rich democrats have succeeded in getting 95% of the democrats off the tax rolls.

Why should the democrats care about taxes when they don't pay any?? Why should they care about the waste in the goverment when they don't have to foot the bill?

John

The rich, super rich, wealthy, super wealthy etc...are all names spouted about. Like upper, middle and lower classes. These have no standards to compare them towards. I think it would be more useful to compare standards of living, with a historical perspective to understand where we've been as a nation, where we are now and where we're going. I suspect that we've peaked-out from a standard of living measure in the last couple of decades and are now headed downward.
If we were to use median house hold income as a standard...it's change in the last 20 years has been tiny compared to the real rise in the cost of living and inflation in general. At around $50K per year, it barely covers rent, food and health care after taxes. I would say that the median HH income is now a living wage, and that's it.

Is a living wage equal to being middle class? Maybe, but if the top 10% of incomes are $100K or more, then I would say that maybe 15% of the country are not living from paycheck to paycheck.

That same top 1% (household incomes 350K+) ALSO controls more of the total income and assets of the whole pie than they have in 40 years (actually, probably closer to 100 years). The top 1% has been experiencing an income increase in the double digit percentage rate over the past decade - compared to the middle class, which has seen wage increases in the low single digits, and overall a net decrease in income after taking inflation into account. No wonder the top 1%'s share of the tax burden is increasing - but it's not increasing at anywhere near the same rate as their incomes relative to the median income for a US citizen. The rich are getting richer, yet you are attempting to make it seem like they are being taxed into the poorhouse.

Of course, it reduces the shock value of the "top 1% pays 40% of the taxes" when you crunch the numbers and realize that same top 1% also MAKES somewhere close to 25% of the total INCOME in the country (and the top 10% roughly 50% of the total income), which is why I've never seen this argument used by anyone who ever reveals exactly how large a slice of the pie that top 1% actually is in terms of the overall income in the US.

Ronald Reagan had it right. The tax system is punitive and it works as a disincentive to workers:
"The people have not created this disaster in our economy; the federal government has. It has overspent, overestimated, and over-regulated. It has failed to deliver services within the revenues it should be allowed to raise from taxes. In the 34 years since the end of World War II, it has spent $448 billion more than it has collected in taxes--$448 billion of printing-press money, which has made every dollar you earn worth less and less. At the same time, the federal government has cynically told us that high taxes on business will in some way "solve" the problem and allow the average taxpayer to pay less. Well, business is not a taxpayer; it is a tax collector. Business has to pass its tax burden on to the customer as part of the cost of doing business. You and I pay taxes imposed on business every time we go to the store. Only people pay taxes and it is political demagoguery or economic illiteracy to try and tell us otherwise.'

'The key to restoring the health of the economy lies in cutting taxes. At the same time, we need to get the waste out of federal spending. This does not mean sacrificing essential services, nor do we need to destroy the system of benefits which flow to the poor, elderly, the sick and the handicapped. We have long since committed ourselves, as a people, to help those among us who cannot take care of themselves. But the federal government has proven to be the costliest and most inefficient provider of such help we could possibly have.'

'We must put an end to the arrogance of a federal establishment which accepts no blame for our condition, cannot be relied upon to give us a fair estimate of our situation and utterly refuses to live within its means. I will not accept the supposed "wisdom" which has it that the federal bureaucracy has become so powerful that it can no longer be changed or controlled by any administration. As President I would use every power at my command to make the federal establishment respond to the will and the collective wishes of the people.'

'We must force the entire federal bureaucracy to live in the real world of reduced spending, streamlined function and accountability to the people it serves. We must review the function of the federal government to determine which of those are the proper province of levels of government closer to the people."

"The 10th article of the Bill of Rights is explicit in pointing out that the federal government should do only those things specifically called for in the Constitution. All others shall remain with the states or the people. We haven't been observing that 10th article of late. The federal government has taken on functions it was never intended to perform and which it does not perform well. There should be a planned, orderly transfer of such functions to states and communities and a transfer with them of the sources of taxation to pay for them. The savings in administrative overhead would be considerable and certainly there would be increased efficiency and less bureaucracy."

"By reducing federal tax rates where they discourage individual initiative--especially personal income tax rates--we can restore incentives, invite greater economic growth and at the same time help give us better government instead of bigger government. Proposals such as the Kemp-Roth bill would bring about this kind of realistic reductions in tax rates.In short, a punitive tax system must be replaced by one that restores incentive for the worker and for industry; a system that rewards initiative and effort and encourages thrift."

Allan, why should a class pay 40% when they only have 25% of the income?

Allan, my point is our system was set up for fair and equal treatment for all. Never was the system intended to be punitive towards any class. Once you allow the system to treat a miniority class unfairly then its only a matter of time before other injustices pop up.

John

yeah, this whole soak the rich nonsense is exactly that. nonsense. why, just the other day, i threw away the winning super lotto grand prize ticket because them taxes were just so unfair!

christ on stick, rich people pay taxes and yet they're still rich. how can it be??? it's inconceiveable! it's preposterous! it's... it's a miracle! praise debbie!

Why should the upper class pay a higher rate than the middle class? Simple,in absolute terms the upper class has MASSIVELY higer incomes and, as a result, even more massive disposable income (that which remains after "living expenses"), even with taxes. Over the years, those monies are compounded and result in huge disparities of wealth in a relatively short while. That is what we are now seeing. There comes a time when a balance must be attained.

Jificquette- You server your kleptocratic masters well.

If you listen carefully you can hear Nero warming up on his fiddle...

"Fair and equal treatment for all"? "Never was the system intended to be punitive towards any class"? Huh? What? Who said anything about fairness?

The problem here is that capitalism and democracy don't inherently mix very well. Although the vast majority under capitalism are better off than they would be otherwise, resources tend to get concentrated at the top (that's the nature of the system), and those beneath the top will always see some injustice in their relative positioning regardless of their absolute status. Democracy ensures that those beneath the top will, through the legislative process, take a big chunk of those resources from those at the top to distribute amongst themselves. And that's just the way it is. It will never change. Atlas Shrugged is a work of fiction, after all.

In my view, all I ask of the government is that it attempt to balance two opposing objectives: (1) Keep taxes low enough so that distortions (and encroachments on freedom) in the economy are somewhat minimized (no, they don't do a particularly good job of this), and (2) Keep taxes high enough such that "the masses" don't revolt and burn down the house, so to speak (they do a slightly better job at this).

While I'm a "small-l" libertarian, I accept the fact that we live in a democracy and that if the masses get upset enough, they'll revolt... and the benefits of lower taxes and greater economic freedom will be worthless. Yes, the government horribly mismanages our tax dollars; that's the nature of the beast. But, in my view, taxes are the price we pay for social stability.

If you're searching for "fairness" or "economic utility" in the tax code, you'll be left wanting. Look at it as a system of bribes or extortion, if you like. But it keeps the system humming along. And that's nothing to sneeze at. Just my two cents.

Allan, I was referring to our system of Government as outlined in the Constitution and Bill of Rights standing for fair and equal treatment. I was not suggesting that the tax code was intended to be fair. I wasn't clear about that.

John

First of all, I'm not Allan. Second, democracy isn't about "fair and equal treatment." (How can a system of "majority rules" possibly lead to "fair and equal treatment"?) It's about redistribution. Until you accept that fact, you're going to be one unhappy fellow.

The numbers are misleading. They are for "adjusted gross income", not total income. Most wealth accumulation is not included in "adjusted gross income" until a taxable event occurs - like the sale of a stock.

The Top 5 percent of the earners accumulate 90 percent of all the wealth increase each year. For example, Bill Gates who makes a gizillion dollars each year, only pays taxes on the Microsoft Shares he sells, not the ones he has been granted, nor on their appreciation. He also takes advantage of considerable deductions for his charitable foundation.

I am surprised at how little the supposedly smart posters on this forum actually know about taxes, income, and income distribution across american earning classes. The wage earners in California (marginal rates)pays about 23% fed tax, 9% state tax, and 8.5% social security tax plus another 8.5% ssn by the employeer (payroll tax). That is about 47% depending on how you calculate in the payroll tax.

I guarantee, that the top 1% earners pay nowhere close to that on their wealth appreciation each year. And none of this includes property tax, sales tax, et. al.