Blue Mass Group

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In the fullness of time .. a growing appetite for progressive taxes

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“What we have in Massachusetts is a number of wealthy people who would be willing to contribute more – not all of them, but certainly have the capacity to contribute more – to relieve some of the pressure on the working poor,” Patrick said. “Those are big, big questions, huge challenges. They need to be sorted out in specifics and not the kind of abstracts we’re talking about now, and I don’t think we’re going to get to any of those specifics for some time.”

Patrick said, “We don’t have many really progressive mechanisms in Massachusetts, and we’re going to have to sort that out in the fullness of time, put it that way.”

So what is the fullness of time my friends?

crossposted at ONE Mass

P.S.  Please forgive the cartoon. I couldn't resist. I kinow all the rich aren't idle.   

 

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  1. Services, roads, bridges, and schools don’t just grow on trees.

    <

    p>And frankly, passing the hat won’t create jobs, either.

    <

    p>Real value created is what leads to wealth, and economic activity that benefits a society.

    • Giving ourselves the means to invest more in our future will only expand jobs in our state, thereby expanding those who get to share in prosperity. We need a progressive income tax if we’re ever going to create a system in which truly everyone has opportunity — and good jobs are available everywhere, to everyone.  

      • I think increasing the current income tax rate is enough.

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        p>It is far more progressive than the sales-tax increased just jammed through, and it will contribute a great deal towards balancing the budget.

        • Yes, the income tax as is would be better than the sales tax, but a progressive income tax is better than the current income tax. I say progressive because the graduated income tax can come in many shapes and sizes. At the very least, it should be linked to/in proportion with the federal rates. I’m actually surprised this isn’t a big issue to you.  

          • because there are too many “loopholes” in that tax code that allow exclusions that the average person does not have.  Maybe if the federal code got corrected to represent a true graduated tax then the State could follow.

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            p>Absent the graduated tax, a higher fixed rate combined with higher exemptions would be an improvement.

            • You’d have to make the exemption become very high if there were ever to be some kind of real balance. If we don’t want to tie it to the fed rate, then we can create our own, but that would probably be harder to pass. One beauty of tying it to the fed rate is it’s something people are already doing. It won’t add considerably more work for them, and IMO it would feel more reasonable to some. I’d just as assume not tie it to the federal rate, I just think it would add an extra hurdle to pass it. It’s letting perfect be the enemy of good.

      • 56% of likely voters according to rasmussen want to pay zero dollars more to be more “green”.  The cap and tax bill that will destroy this economy will be the deathknell of the left. But you keep believing its a crowning achievement.  

        • You took the poll and lied mixed up (I’ll be polite) the results. In fact, 56% of the population is willing to pay $10 more per bill for greener energy.

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          p>

          Take, for example, a poll conducted by ABC/WaPo one week before the passage of the bill. In it, voters were asked would they support cap-and-trade provisions, even if it meant a ten-dollar increase in their electric bills. 56% of Americans said yes, while 42% of Americans said no.

          <

          p>The funny thing? I’m linking to the same link I just linked to before. http://www.dailykos.com/storyo…

          <

          p>Have fun with that completely-making-shit-up thing. Keep doing it and you’re bound to fool someone… My grandmother’s a little senile nowadays, perhaps you should try knocking on her door?

          • The poll which can be found here clearly stated that:

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            p>

            Fifty-six percent (56%) of Americans say they are not willing to pay more in taxes and utility costs to generate cleaner energy and fight global warming.

            <

            p>and if you look at the crosstabs, which are for premium members of Rasmussen Reports the numbers are even more staggering, only 21% want to pay less than $100 a year for the bill in either taxes or increased energy costs.  42% of Americans think the cap and trade bill will hurt the economy.

  3. I love the cartoon..
    That’s exactly how it feels, running on that treadmill everyday and getting absolutely nowhere.  

    • must it feel that way – to a bright eyed liberal – looking to your government as savior and fixer of all woes –  until you become old and cynical and embittered?

      <

      p>or you could give freedom a try.

      <

      p>That is why people came here, after all.  It wasn’t for the free healthcare.

      • apparently you look to government to continue to give you a break on taxes. This country operates on the backs of the middle class, the working class. The middle class looks to government for nothing, whereas the poor get subsidies and the rich get tax breaks. It looks to me like you want the government to continue to be your savior.

        • According to the Tax Foundation:

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          p>

          Overall, we find that America’s lowest-earning one-fifth of households received roughly $8.21 in government spending for each dollar of taxes paid in 2004. Households with middle-incomes received $1.30 per tax dollar, and America’s highest-earning households received $0.41. Government spending targeted at the lowest-earning 60 percent of U.S. households is larger than what they paid in federal, state and local taxes. In 2004, between $1.03 trillion and $1.53 trillion was redistributed downward from the two highest income quintiles to the three lowest income quintiles through government taxes and spending policy.

          <

          p>At $1.30 in return for every tax dollar paid to the government, the middle class gets a good return on their tax dollars.

          • We don’t pay taxes to get a dollar for dollar return.
            The point about a graduated progressive income tax is
            that those who have more, can pay more taxes without
            it having a negative impact on their basic needs.  

            <

            p>When the middle class pays more in taxes, they end up cutting things from an already tight household budget.

            <

            p>When the wealthy pay more in taxes, it probably doesn’t change their lifestyle one bit.  It certainly doesn’t go anywhere near their basic needs, such as housing, utilities, food, clothing, etc.

    • Look in mirror.  When it comes to progressive tax rates, we’ll all be defined as rich.

  6. I remind us to remember some definitions, and ask that we maintain some semblance of rigor in applying them:

    <

    p>”Progressive tax”: A tax who’s rate is higher for the wealthy then for the poor.

    <

    p>”Wealth”: Accumulated or aggregated resources.

    <

    p>”Income”: The amount of money or its equivalent received during a period of time.

    <

    p>The point is that “high income” and “wealthy* are not the same. An individual who is receiving $1.2M/year who has simultaneously taken on debt service of $2.5M/year is not wealthy.

    <

    p>In my view, the federal Estate Tax is an example of a progressive tax, especially given the high exemption and credits currently in place.

    <

    p>I’ve argued on another thread that a graduated income tax does not have the desired effect (of taxing the truly wealthy) and tends to be counter-productive, if anything. It penalizes high wage-earners and rewards high income earners — precisely the inverse of what I suspect we envision.

    <

    p>We confuse “income” with “wealth”, and then chase the resulting illusion. The effect of that chase is to erect barriers that prevent people from becoming wealthy while preserving and enlarging (through “balancing the budget”) the assets of those who already are.

    <

    p>I would also remind us that with any graduated tax, it is mathematically impossible to avoid imposing either a “marriage penalty” or a “single penalty” — there is no way, with a progressive tax rate, for two individuals with different incomes to pay the same taxes on their combined income as they would pay separately. I’ll be happy to show the algebra for those who care about such matters.

    <

    p>If we want more progressive taxes, I suggest that the first place to start is to steeply increase the federal and state Estate and Gift Tax. That is the principal way that wealth is transferred from one generation to the next within a family.

    <

    p>If we want to tax the wealthy, then we need to tax wealth. The estate and gift tax does that; the income tax does not.

    • If you only phrase it in penalties, then this statement

      I would also remind us that with any graduated tax, it is mathematically impossible to avoid imposing either a “marriage penalty” or a “single penalty”

      isn’t quite right.

      <

      p>Consider: tax_marriage = min(tax(spouse1+spouse2),tax(spouse1)+tax(spouse2))

      <

      p>has no marriage penalty.  It also means that if spouse1 has income $1,000,000 but spouse2 has income $100 that they’ll pay no tax.  I didn’t argue that it was a good or fair formula, but it is a formula which contains no marriage penalty.

      • We want marital status to not matter:

        <

        p>tax(payer1, payer2) = tax(spouse1, spouse2).

        <

        p>I believe your example falls foul of the latter constraint.

        <

        p>The only way that tax(payer1+payer2) can equal tax(payer1) + tax(payer2) is if tax is constant across both (distributive property).

        <

        p>Let’s consider your example, payer1 income = 1,000,000 and payer2 income = 100.

        <

        p>Tax on payer1, single, is income tax on 1,000,000.
        Tax on payer1, married, is zero.

        <

        p>Sounds like a single’s penalty to me.

        • my brain didn’t process the “or singles penalty”.

          <

          p>You can extract no marriage penalty.
          You can extract no singles penalty.

          <

          p>You can’t do both at the same time.

          <

          p>That written, I don’t buy the “penalty” stuff.  Marriage allows lots of benefits that co-habitating “singles” don’t get.  Paying a little something for those benefits and privileges isn’t inherently a penalty.

          • I’m glad I wasn’t missing something obvious in my own analysis, I appreciate constructive exchanges like this.

            <

            p>It seems to me that providing a financial incentive for marriage is likely to increase our divorce rate (currently estimated at 19% for Massachusetts). Massachusetts has the lowest divorce rate in the nation; if a marriage-bonus were offered nationwide, I worry that we would see a corresponding increase in marriage and therefore divorce rates nationwide.

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            p>Since tax benefits strikes me as one of the weaker reasons to marry, I suspect that a marriage bonus would increase the rate of weak marriages and therefore raise the divorce rate even more.

            <

            p>The devastating impact of divorce on children and their parents is already bad, and this would worsen it. More people are choosing to bear children as single parents — I suspect that providing a financial incentive for marriage to men or women who prefer to be single is an even worse idea (and I have serious doubts about the wisdom of choosing single parenthood in today’s hyper-individualist America). We have essentially no data about children of same-sex marriages and only a tiny amount about same-sex divorce rates.

            <

            p>I thus see no compelling evidence that either marital state should be encouraged or discouraged by tax policy. This strikes me as an area that the government should — as much as possible — stay out of.

            <

            p>It appears to me that our culture is in the midst of deep and revolutionary changes in our attitudes about marriage and family, and I would prefer to wait until a societal consensus emerges about whatever our new order will be before restoring a strong government-imposed financial bias one way or the other.

      • Your formula would not lead to 0 tax for that situation. Unless you meant to use
        min(tax(spouse1+spouse2),min(tax(spouse1),tax(spouse2)))

        <

        p>Your formula says to calculate what their combined total tax bill would be if they weren’t married and calculate the tax bill given that they are married and charge them the lower number in taxes. It is a guarantee that nobody will have to pay more in taxes as a result of being married.

    • I would also remind us that with any graduated tax, it is mathematically impossible to avoid imposing either a “marriage penalty” or a “single penalty”

      <

      p>It’s easy to do. Just have everyone file taxes on their own, without caring about whether they are married or not. There is no reason that a married couple has to file their taxes jointly. You just have to define a single owner of any account for tax purposes.

  7. Per DOR statistics, the top 1% already pay 20.4% of the state’s income tax; the top 5% pay 37.3% and the top 10% pay 49.1%.

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    p>For emphasis: 10% of the taxpayers pay 1/2 the income tax the state collects.

    <

    p>While the flat tax of 5.3% may not meet your dream-date ideal of progressive, it’s pretty plain that if you’re advancing the progressive tax as a means to raise taxes, you’ll have to advance the rate on more than just the ‘rich’; you’ll have to define rich down into the $100K group.  After all there are only 300-400 thousand or so families earning over 200.

    <

    p>But assume you do jack the rate on those earning over $100K.  What’s the chances that some of them will move, or otherwise shelter their income out of Mass?  You’d really jack the rate for a liberal dream to risk losing the heavy hitters, high income earners of the state?

    <

    p>Mass Progressive tax, stimulus package for New Hampshire.

    <

    p>Alternatively, if you’re seeking a progressive rate because it’s the textbook liberal thing to do, really, what’s the point?  To achieve the success of progressive New Jersey ‘it’s the progressivity, stupid’, or California?

    <

    p>Or, if any of those reasons don’t interest you, consider, math.  Graduate the rates and what happens during recessions.  The wealthiest income earners are also the incomes with the greatest variability.  That’s what happened in this fiscal cycle: capital gains dissappeared. Revenues dropped.  Assuming a high progressive tax; assume those people don’t move or shelter income, when a recession hits their income drops, and you have … California.

    <

    p>Frankly though, I echo PP’s sentiment.  I’d love to see Governor Patrick push the progressive tax.

      • But, I’ll update, based on IRS data, even though it’s strangely biased that you imply criticism for old data AGAINST a progressive tax based yet argue FOR a progressive tax based on no apparent data.

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        p>2007 IRS data for Massachusetts filers:

        <

        p>-There were 156,606 filers with Adjusted gross income exceeding $200,000.

        <

        p>-Those 156,606 filers reported 96,260,033,000 of income.  

        <

        p>Raising their tax rate 1% yields $1 billion. Note that the reduction of fy 2008 revenue to f/y 2009 was more than $2 billion.

        <

        p>Therefore, if you want to tax the rich 156,000 filers to fund the shortfall, that means you’ll have to raise the raise more than 2 percentage points, from 5.3% to 7.3%.  That’s conservative, by the way, and assumes, no relocation of income out of the state, and no reduction of taxes to anyone in the other income demographics.

        <

        p>The rich can afford to get popped by 2 points, you say?  Probably.  Will they afford it?  Who knows what kind of blow-back you’ll get from that soak the rich stategy.  Will you risk, say, the execs from TJX, Biogen, Sepracor or Fisher Scientific figuring that the wallet is greener on the other side of the border.

        <

        p>  

    • Gary wrote: “10% of the taxpayers pay 1/2 the income tax the state collects.”

      <

      p>More accurately, the top 10% of the income earners pay 1/2 the income tax.

      <

      p>Now, let’s see the actual distribution of wealth in Massachusetts. First, this data is much harder to find, especially for the top 5% (it’s a small enough number of people that each is likely to be identifiable).

      <

      p>Please consider just one micro-example. What is the wealth of the Kennedy family? According to speculation (and it is just that) in this Time magazine piece (contemporaneous with your 1996 tax data):

      Guesses as to the total Kennedy family wealth that this fortune has blossomed into today run anywhere from $1.5 billion to $3 billion.

      <

      p>How many residents of Massachusetts control wealth measured in BILLIONS? I would consider myself lucky (and wealthy) if I could amass a net worth of twenty million — the Kennedy fortune is likely to be ONE THOUSAND times higher. I encourage you to attempt to plot even this single data point on graph paper — you’ll need a really wide piece of paper to show anything for the middle-class on the same page.

      <

      p>Let me therefore ask a hypothetical: if the top 5% of the population controls 50% of the wealth of the state, why should they not bear 50% of the tax burden?

      • I should have said ONE HUNDRED times greater (than twenty million).

        <

        p>It doesn’t change the substance. Many of us would be happy with a net worth of two, instead of twenty, million. Then the thousand-fold difference still holds.

      • Much of that wealth is probably property which is a form of wealth that is already taxed.  Excluding that, there’s a luxury tax for many purchases, so some of it’s been taxed then, and another big chunk is sitting in securities, which are taxed when they are sold.  Do we just tax the appreciation of an asset or can someone deduct depreciation – like buildings, improvements etc.?

        <

        p>So my response to your hypothetical situation is: what portion of total tax collected do the top 5% currently pay when all the taxing bodies of the state are accounted for.  It’s not to say we should look into it, but that’s the first question we need to have answered.    

        <

        p>I’m not disagreeing with your sentiment that we should not just tax income (although I also think we should have a graduated income tax to capture high wage earners who can afford to pay a higher proportion than lower wage earners), but it’s a complex issue.  

        • I’ll find it when I have a moment (the data about your “first question”.

          <

          p>The figure to look at for wealth share is “non-home wealth”. I assure you that the Kennedy fortune is not tied up in real estate.

      • Let me therefore ask a hypothetical: if the top 5% of the population controls 50% of the wealth of the state, why should they not bear 50% of the tax burden?

        <

        p>Maybe even give them extra votes because they’re rich.

    • it’s pretty plain that if you’re advancing the progressive tax as a means to raise taxes, you’ll have to advance the rate on more than just the ‘rich’; you’ll have to define rich down into the $100K group.  After all there are only 300-400 thousand or so families earning over 200.

      <

      p>I’m not arguing policy here, only math.

      <

      p>Folks making $115,708+ paid 37.3% of the tax.  That means that if you doubled the tax rate on income over $115,708 that revenue would increase 37.3%.  Now to be sure, that ignores the very real rebound impact that would occur.  Some big earners would move out of state.  Some would hire more creative accountants.  So, multiply 37.3% by some value strictly between 0 and 1.  

      <

      p>The top 10% was at $84,336.  Double the tax rate at that threshold and you’ve got a revenue increase of 49.1%, subject to the same caveats.

      <

      p>So yeah, you could crank up taxes on the top 5%/10% of taxpayers and have a substantial increase in revenue.  At the 5% level you remain above your arbitrary “$100,000- isn’t rich” threshold.

      <

      p>Again, arguing the math, not the policy.

        • Want a 10% increase in revenue?  Raise tax on the 5% band ($115k+) by 26% (5.3% to 6.8%) and you’ll have a 10% increase in total income tax revenue with flat income gains (and no rebound).

          <

          p>Practical or politically possible?  Maybe.  If you expand to the 10% band ($86k+), you have even more flexibility (perhaps at the cost of less political willpower).

          <

          p>My point: I don’t buy your claim that a progressive tax necessitates an increase on the non-rich (your definition) from a numeric perspective.

          • My point: I don’t buy your claim that a progressive tax necessitates an increase on the non-rich (your definition) from a numeric perspective.

            <

            p>It absolutely necessitates an increase on the non-rich, and the Government doesn’t have to do anything at all.

            <

            p>Pass a progressive rate structure and let inflation do the rest.  In the 70s, the CPI increased 47%, taxpayers paid 60% in more taxes, a result of the progressive bracket jump.

            <

            p>Just look at social security, partially taxed in 1984 to those folks earning over $32K ($24K if single).  $32K then is $65K now.  Same true with the AMT.

            <

            p>Look at California. Compare ’93, the earliest year I have in print.  If you earned $94,110 in 1993 you paid 9.3% marginally. Earn $94,110 in 2008, you paid 9.3% marginally. [94K then is equivalent to $140K today).

            <

            p>Or, New Jersey.  In ’95, if you earned 50K you paid .0245.  In ’08 if you earned 50K you paid .0613.  Triple the rate, plus inflation bracket creep.

            <

            p>Give them a rate, and let inflation take care of the bracket creep, and, given the pure mathematics of it all, inevitably, absent political action, we’re all defined as rich, and paying the top rate with no action required by the government. It’s irresistable too.  Government budgets have incentives to grow, and the progressive tax encourages it.

            <

            p>

          • tax wealth, as I noted upthread.

            <

            p>A stiff increase in the estate tax, especially if it is graduated, taxes accumulated wealth. I don’t think dead folks can “simply get up and move”, but I could be wrong about that … đŸ™‚

            • No, the dead don’t move, but the living hire lawyers and accountants to move their wealth around while they are alive.  Its called “estate planning.”  

              <

              p>By the way, 2010 will be an excellent year to die, with no federal estate tax at all.  2011 will be a bad year to die by current standards, with the exemption for estates reduced to $1 million and a top tax rate of 55%.  Progressive enough for you?  

  8. …past all the slams, charges and counter-charges, stats, arcane regs, and diference of opinion – THIS IS WHY A PROGRESSIVE TAX IS NO GOOD!  I speak as a proud former IRS employee from the Taxpayer Service Division!

    <

    p>It’s fascinating – as the NATION moves toward a flat or VAT tax – YOUSE guys want to re-invent the IRS wheel and introduce the complexity of deduction and exclusion to MA!  The genuinely wealthy can hide their money, and the soak-the-rich tax scheme clobbers the middle class.

    <

    p>A flat percentage.  If you aren’t taking in enough, then you need to spend less.

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