Top 1% of Americans Get Largest Share of National Income Since 1928

From what I saw on their website, they do not offer Roth 401(k)'s. They only offer SEP IRA's.

 

As an aside, we got sidetracked into a debate about taxes when the original article was about income distribution.

I don't know what you can do about income distribution. I really don't. I know it has lousy consequences. But have no idea how to address it and keep the advantages of a market economy. I know I don't like the trend. But so far I like the solutions less. Crazy.

As another aside...of all the tax systems I've studied, the US one is the most convoluted, mixed up, inconsistent, piecemeal maze of regulations and concepts I've ever seen. We can discuss rates., or individual specifics all we want, but the root of the problem, in my most humble opinion, is the mess of a system that's been allowed to evolve.

 

In one case, you pay now. In the other, you pay later.

Let's say you have $1000 and you're permanently in a 25% tax bracket.

If you pay now (Roth IRA), you invest $750 in your IRA. Let's say you invest for 5 years at 10% and then retire. You retire with $1207, with no taxes owed.

If you pay later (Traditional IRA), you invest $1000. Same scenario, you end up with $1611. Once you pay your 25% in taxes, you end up with ... $1208 ($1 off due to rounding).

So, what matters is your current tax rate vs retirement tax rate. If you expect to have a lower tax rate at retirement, you'll make more with a traditional IRA. If you expect you'll have a lower tax rate now, you'll make more with a Roth.

So, if you have a higher income now, the chances are higher that a Traditional IA is better for you anyway because you're in a higher tax now. But this all depends on what tax structure will look like when you retire and what type of income you expect to have then.

 

As someone with a Roth IRA the advantage is that when you retire you will have far less of an income than you do now so it makes sense to pay the taxes now rather than when you are drawing on the IRA.

 

Totally agree. Unfortunately, the accounting and legal industries benefit from that convolution, and they have powerful lobbies in Washington. A simplified tax code should be at the top of the agenda, but it never will be unless you have a lame-duck type President that really wants it and has a lot of political capital to spend on it. I think it was one of Bush's hopes, but he doesn't have the political capital to make it happen.

 

I think you're right. And even with all of the rest of his screw-ups, had we not invaded Iraq, Bush would still be very popular. So I blame the Iraq war for the continuation of the ridiculous Federal Income Tax system.

 

Beleive it or not, the lawyers and accountants would like a simpler code. They get paid either way.

But there are too many other players who benefit either politically or financially from each paragraph of the tax code.

 

They won't get paid if people don't need to hire them to do it. They'll get paid less if a simpler tax code let's them do the work in half the time.

That is true. Every new darling cause will get a tax benefit of some sort, whether it's kids or ethanol or whatever.

 

I have to admit that the intricacies of the tax code are beyond me but getting back to the original subject of the thread I don't see how the growing income disparity can be considered a good thing. Many people don't like to talk about class warfare but when there is such a huge gap in income that creates the conditions for class warfare. What many people seem to be arguing is that the poor should just accept their lot in life and that it isn't fair to penalize the rich for earning that much money. This brings me back to something I brought up a while ago about the difference between an equitable vs. a just society.

Yes, it isn't equitable to punish one class over another and that the rich should have as much right to keep as much of their wealth as possible. At the sametime though is it just that so much wealth gets concentrated in the hands of so few?

I'm not going to pretend their are easy answers for that question or easy solutions. Personally I don't have any good ideas but I think its an issue that has to be addressed. Ideally our economy should be able to narrow the income gap by raising the income of all sectors. To me that would be the preferable to trying to tax the rich down.

 

But remember the idea of the "tax form on a postcard" idea that people were floating around several years ago? Look at the number of people that have to rely on accountants to deal with all the deductions and other stuff they could be eligible for. The complexities give the accountants a lot of extra clients and a ton of extra billable hours they wouldn't have in a simpler system. I wouldn't argue that individual accountants or lawyers don't want a simpler code, but the lobbying organizations have always fought those types of things.

But I do agree that even beyond that, there are too many people vested in each of the tax breaks currently in the system. Imagine the outrage if you took away the education credits or the mortgage interest deductions.

 

How little you know about accountants and lawyers

 

I agree with this study although I find nothing wrong with it.

In general the progressivity of the US federal tax system has declined alot over the years mainly at the top of the income strata.

Since 1960, middle income earners have seen their taxes increased and then declined slightly. Whereas if you in the top 1%, your taxes have fallen drastically.

The largest drops were those of the 1/100 of 1% and 1/10 of 1% income earners.

The top 1% is around 850K wage earners these days.

Most of the tax reductions took place during two times: Reagan era in th 1980's and GW Bush's era of early 2000's

But while still losing some progressivity it still very strong in general terms.
The lowest 20% of households pay 1% of federal tax owed. Next 20% pays 5%, next 20% pays 10% and next 20% pays 17% or so.

But the real kicker is that the top 20% pays 66% of government costs, and the top 1% pays 25% of the total tax burden.

So basically the top 1/5 of earners pay 2/3 of all govt. costs.


But ultimately in regards to a total fiscal sense, the tax cuts are really putting a crunch on this economy. These tax cuts are futher exacerbating a fiscal deficit number never seen before. Tax cuts=good, but tax cuts with increased deficit spending= bad.


The argument that cutting rates of the top 1% will increase consumer spending is somewhat shady to begin with. It has been somewhat disproven that the top 1% does spend more when they have these increased cuts.

I wish for the days of paleoconservatism.

 

It's not about income - it's about standard of living. Yeah, you have more people living really wealthy lives then ever before.

But is the median American living a better life then in 1928?

That's the question that should be debated. If people are healthier, with more luxuries, and more leisure time - than that changes things.

Think about this - we all live a pretty darn good life here. We can eat out at restaurants, go shopping, play games on your computer or our in the yard, get away for camping, have a home. These are the things are they not that define quality of life?

Does it matter if someone make 400 times what I make if I live a good life and can afford the things I want?

Or is the Average American living less of a live then 80 years ago?

 

Bush has done well for his "base".

I had to comment on this without reading the rest of the thread.

Gifford, are you a Communist? If you are a patriotic American, only a Marxist Leninist or Maoist Communist would concern themselves with what the top 1% gets wrt to say the lower 50%.

 

A well timed parable about the tax system by famed economist Greg Mankiw:

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing. The fifth would pay $1. The sixth would pay $3. The seventh would pay $7. The eighth would pay $12. The ninth would pay $18. The tenth man (the richest) would pay $59. So, that's what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten now cost just $80.



[T]he bar owner ... proceeded to work out the amounts each should pay [after the 20% reduction]. And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings. "I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man," but he got $10!" "Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I!"

"That's true!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!" "Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up. ... And that, boys and girls, journalists and college professors, is how our tax system works. ...

 

Um...that's pretty irrelevant considering the average, well...any citizen from any non-third world country is having a better life then in 1928, thanks to the advances humankind has made over the last eighty or so years (space travel, computers, civil airplane service).

Better to compare with other countries in the now, where the US just fails according to every UN survey/poll thing. Oh well.

 

Yeah, I was thiking more like, if you're earning hundreds of thousands, you're living a comfortable life already. It IS fair to tax the rich 40%, because you know damn well that they have enough money to support themselves and provide for themselves in every way possible. Damn well.

While those who are earning something like minimum wage struggle to get through.

Which begs the question, just because someone earns minimum wage, does that make them any less of a person then someone earning millions? Even if, by a dubious leap of logic and of stereotyping, everyone on the welfare system IS a crackhead momma, does that make them any less of a person?

Mmhmm.

 

Maybe someone else should do your taxes. Property Taxes are preference items and are not deductible for AMT purposes.

 

But we just saw in this articles that the top 0.1% of americans earn the same as the bottom 50% of americans. 300K to 150MM, translating into a 500 to 1 ration.

So if the bottom have pays let's say 12% of the tax and the top 0.1% is paying 12% (which i doubt it's that high).....then you'd have a situation where the ultra rich earn as much as the bottom half, and pay about the same amount of tax at the end of the day.

Doesn't sound so progressive anymore does it?

 

I meant my income is in AMT range, but I pay enough taxes already.