Top marginal tax rate in US now ~65%

[Kidlicious]

If it's similar to other tax systems, certain allowances are gradually eliminated when you reach a particular level of income.

For example, if there were an allowance of $5,000 that was eliminated at a rate of $1 per $2 of income over $300,000 then it would be eliminated entirely at an income of $310,000. In such a scenario, each $1 of additional income would also create $0.50 of income now subject to tax - the effective marginal rate is therefore increased above the headline rate. If the tax rate is 20% it increases to 30%, if it's 40% it increases to 60%, if it's 60% it increases to 120% etc. Actual numbers may vary...

First gross income is adjusted. We call that agi. From agi deductions are made to taxable income. The marginal tax rate is applied to your taxable income, not to you gross income or agi. I don't know where KH is coming up with those numbers. They don't make sense.

There's been no change in adjustments, only to deductions. What I'm saying is that no one actually pays 35%, but without deductions someone could pay as much as 35%.

[Ben Kenobi]

It should have read "$4 trillion in DEBT added over ten years." But no one knows what the deficit will be in 10 years. Those are simply projections.

Actually we don't even have a budget. Haven't in the last 4 years. As a result, Obama's spent 6 Trillion already. So it would be more correct to say 6 trillion in another 4 years. See, this cluelessness is why you don't get why the US is in trouble. You're off on the deficit by a factor of 2.5x.

[Dauphin]

35% + 10% + 3.8% = >65%?
please elaborate for clueless european.

If it's similar to other tax systems, certain allowances are gradually eliminated when you reach a particular level of income.

For example, if there were an allowance of $5,000 that was eliminated at a rate of $1 per $2 of income over $300,000 then it would be eliminated entirely at an income of $310,000. In such a scenario, each $1 of additional income would also create $0.50 of income now subject to tax - the effective marginal rate is therefore increased above the headline rate. If the tax rate is 20% it increases to 30%, if it's 40% it increases to 60%, if it's 60% it increases to 90 % etc. Actual numbers may vary...

[Barnabas]

No one should pay more than one third of their income in taxes. More than 33% and the State is robbing you.

[Kidlicious]

I have been over this with you enough times that I suffer no delusions you will ever understand the arithmetic.

I don't know what you're talking about. I haven't talked to you since you were living at home with your mom and dad. But I'm not sure what kind of arithmetic you're talking about. If you cut someone's taxes you have to raise someone elses taxes if you want the same tax revenue.

[Kuciwalker]

Then the only people who would work, would be those who don't have the means to invest money, and they will, of course, pay more tax.

I have been over this with you enough times that I suffer no delusions you will ever understand the arithmetic.

[Kuciwalker]

Even in the case of larger startups/IPOs the economic activity is in the gray area between wage income and capital income.

Regardless, none of it should be taxed at all.

xpost

[Kidlicious]

Investment income shouldn't be taxed either, so the availability of regulatory arbitrage into capital gains is welfare-enhancing.

Then the only people who would work, would be those who don't have the means to invest money, and they will, of course, pay more tax.

[MichaeltheGreat]

This is exactly backwards. Startups and expansions are much more likely to represent disguised wage income than capital gains on ordinary assets are.

In a small business, yes. Then again, we already have excessively punitive PSC rules to address that. I'm not talking microcapitalization of small businesses by insiders or affiliates.

[MrFun]

Who exactly benefits from this sort of tax subsidy game?

The wealthy. As you've illustrated, it has **** to do with job creation.

[Kuciwalker]

and split capital gains rates so that venture/risk capital to fund real startups and expansions (as opposed to creating proxy entities to shelter income) are tax exempt, while ordinary capital gains from resale of assets are taxed at something closer to, but still less than, the applicable tax rate on ordinary income.

This is exactly backwards. Startups and expansions are much more likely to represent disguised wage income than capital gains on ordinary assets are.

[Kuciwalker]

A majority of capital gains are essentially non-job creating transactions between asset owners. The only jobs created are for the brokers, the caddies for the CPA firm partners, and the guy in India who does the actual accounting work for the CPA firm. Capital gains are also used in conjunction with repeated use of accelerated depreciation to manipulate ordinary income into deferred capital gains.

Case in point, I'm working on a transaction involving a couple of existing powerplants with a lot of time remaining on their power purchase agreements. After purchase, they'll have minimal capital improvements to convert them to combined heat & power, which will change the core plant from 20 year depreciation to 5 year. On the whole plant, not just the capital improvements, all with a new placed in service date as of the re-start. Tax depreciation will offset all operating income, with a little pass through on top, then the buyer will flip the assets and take a capital gains hit at the end, after paying nothing in income taxes for five years. The next buyer will do the same. Then the next. The first set of buyers will create about zero net jobs (most of operating crews will be laid off during capital improvement program, so this will offset creation of construction jobs.) Subsequent buyers will create zero jobs as well, as the same crews will operate. At the end of the process, 15 years of profitable operating income will be taxed at lower capital gains rates after one to five year deferrals when the asset is resold. Who exactly benefits from this sort of tax subsidy game?

Investment income shouldn't be taxed either, so the availability of regulatory arbitrage into capital gains is welfare-enhancing.

[Kidlicious]

Accelerated depreciation on new investment is great - it shouldn't be re-usable, as all it does is give asset flippers a preference than an actual operating business does not get. The problem is that most of the tax code either has means to exploit it beyond its purpose, or is full of industry-specific preferences that make no real sense outside a corporate pork standpoint.

True. That's why the big multinationals have such a low effective tax rate and the little guys have a much higher effective tax rate. I don't see what the point of incentive is if not everyone can take advantage of it.

[MichaeltheGreat]

A lot of those have good purposes, but from my experience they don't really do as much good, as they simply lower tax revenue.

Accelerated depreciation on new investment is great - it shouldn't be re-usable, as all it does is give asset flippers a preference than an actual operating business does not get. The problem is that most of the tax code either has means to exploit it beyond its purpose, or is full of industry-specific preferences that make no real sense outside a corporate pork standpoint.

[Kidlicious]

Case in point, all this fetish (and the false wailing and gnashing of teeth from the right) about the Bush-era Federal Income Tax rates, when the real issues in the tax code are things like capital gains rates, re-use of accellerated depreciation on existing assets, special purpose breaks and credits.

A lot of those have good purposes, but from my experience they don't really do as much good, as they simply lower tax revenue.