Days of Change

Day 1078 – Asymptotic Tax Rates and Other Games

October 18, 2011
1 Comment

Andrew Cuomo wants to let the millionaire’s tax in New York state disappear. This is bad timing, as downstate is currently protesting to put more taxes on whatever the current definition of rich is. He’s sympathetic with them. He supports a national millionaire’s tax. Cuomo’s problem is that a New York state tax on the wealthy is driving them out of the state.

The irony is laughable. This tax is popular with most of the public. It’s the bread and butter of the Democratic Party. It is already law. Still, Cuomo is against it. I assume that besides driving out millionaires, it is also reducing overall revenue to the state. His solution is for all states to enter a suicide pact where every millionaire in the US is under the same tax. It’s a good thing there aren’t other countries in the world they could go and pay less tax. Oh, wait.

While I’m in international territory, let’s look at something really interesting. Wealth distribution figures are hard for me to get a handle on. There’s this group of 1% who have 40% of the wealth. 10% (including that 1%) have 70% of the wealth. So, 90% of the 10% have 30% of the wealth. That means each percent of the bottom 9% of the of the top 10% only have about 3% of the wealth in each percentile.  That means the top wealthiest 1% has, on average, 13 times the wealth of someone in the next 9%. Those rich bastards.

But those in the 91-99 percentile can relax knowing that the lower 90% have only 30% of the wealth. On average, that group only has 0.33% of the wealth for each percentile. The 9% group has only about 9 times as much wealth as the 90% below them in each percentile. Even if the multiple is lower, the bottom 90% seems to be more angry about it. So there’s that.

So, how does that work out in terms of taxes? Well, the only tax on wealth is the estate tax levied at death. Let’s look at income tax instead. The top 1%, those guys with 40% of the wealth, pay 40% of the taxes. It may be more, because they own the stock in companies that pay corporate income taxes. The bottom 47% or so pays no income tax. They make around $25,000 or less per year. That’s terrible. How can you live on that?

Well, it turns out the rest of the world has to. We are the home of wealth as well as wealth inequality. While the average percentile in the bottom 90% has only 1/20th of the top 10% in wealth, the average person in India has 1/100th of the wealth of the average American. Around the world, the top 1% has 40% of the wealth too, but the top 10% has a whopping 85%  of wealth globally.

So, how do we kill the rich redistribute income make them pay correct the disparity? Because of the large variation in income, you would need an asymptotic tax. This is the opposite of a flat tax. The rate would go up higher and higher for each income level until there was an effective maximum income. Rosanne Barr/Arnold, whose net worth is $80 million, suggested the limit be $100 million. Let’s start with income. The smallest sliver of income I could find was the 0.12% who earn above $1.6 million or more. that’s about 135,000 households. The low end of the scale already pays half a million, so let’s call the maximum income about $1 million. For those who make $10 million, like the established actors at the protests, they would pay a 90% tax rate. If you make $100 million, you would pay an unprecedented 99% tax rate. Of course, Warren Buffet only made $63 million, so he’d only have to pay about 96% and he’d be glad to pay it.

Only idiots think taxation is the solution to economic inequality. Even the people who want the rich to pay higher taxes want to use that money to invest in job creation or infrastructure. If I had any confidence such wise use would be made of taxes, I’d have an easier time supporting it. This administration has already failed with borrowed money. Are they going to do any better with extracted money?

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