Bar Stool Economics

[Red Arrow]

Understanding the progressive tax system is not the same as justifying it.   Maybe if I made enough money to live comfortably on a small portion of my income I wouldn't mind paying a lot higher percentage of it in taxes.  Unfortunately, that is not the case.

[nathanm]

I'm not at all opposed to changing the brackets around some. I think it's kind of ridiculous that the 10 millionth dollar is treated equally to the 500,000th dollar. By no means do I advocate a return to our confiscatory wartime tax rates (barring a return to total war), but I think the current structure is stupid on many levels.

[bokworker]

Nathan, higher income earners use more of the resources of the state? I would have thought just the opposite. They definitely provide more resources to the state.

[nathanm]

Nathan, higher income earners use more of the resources of the state? I would have thought just the opposite. They definitely provide more resources to the state.

They are more likely to use the roads more. They are more likely to fly more often, they are more likely to own a business. So yeah, the wealthier you are, the more likely you are to rely upon the resources of the state, just not in the form of cash payments. Ironic, isn't it?

[bokworker]

In general, as it pertains to the parable, the real issue that is highlighted is that once a significant portion of the population pays no tax then the lose all sense of accountability on how tax dollars are spent. It is this issue that I think poses the biggest risk going forward and why I have stated that any plan enacted must "hurt", or alternatively, be paid for by EVERYONE. Only then will we have a chance to realistically have an honest debate about spending priorities going forward. When roughly 45-48% of your population doesn't have any skin in the game then you inevitable end up with an inability to deal with both the revenue AND spending side of the equation.

[bokworker]

ok, I will give you road use, although I am not sure that miles driven are directly correlated to income, but fly more? And that uses state resources how? We don't fly for free and these are private, for profit, businesses. And last I checked,owning a business, on net, creates wealth and is not a net drain on the resources of the state.

[nathanm]

When roughly 45-48% of your population doesn't have any skin in the game then you inevitable end up with an inability to deal with both the revenue AND spending side of the equation.

I disagree. The people with skin in the game are precisely the ones running the show. If skin in the game would result in a rational outcome, we wouldn't be in the situation we're in.

Um, the government pays for air traffic control. The government builds the airports. The folks with private planes don't pay landing fees at most airports they're likely to fly into. (aside from the fools who land at DFW or LGA or other major airports) Air travel is significantly subsidized by the government. I'm OK with that, just as I'm OK with government paying to build roads, but let's not pretend it doesn't exist.

I didn't say that owning a business was a net drain or net gain for the state, I was merely acknowledging that that business likely uses many services of the state, whether it be the roads to deliver goods, police and fire protection, or to the necessary regulations on that business. Again, at least part of the higher tax rate goes to paying for what they use more of. With greater consumption comes greater resource utilization.

[Red Arrow]

Um, the government pays for air traffic control. The government builds the airports. The folks with private planes don't pay landing fees at most airports they're likely to fly into. (aside from the fools who land at DFW or LGA or other major airports) Air travel is significantly subsidized by the government. I'm OK with that, just as I'm OK with government paying to build roads, but let's not pretend it doesn't exist.

I didn't say that owning a business was a net drain or net gain for the state, I was merely acknowledging that that business likely uses many services of the state, whether it be the roads to deliver goods, police and fire protection, or to the necessary regulations on that business. Again, at least part of the higher tax rate goes to paying for what they use more of. With greater consumption comes greater resource utilization.

Um, you are not entirely wrong but the aviation community is not totally on a free ride either. Jet fuel has a $21.9/gal tax (imagine the gallons to fill a Boeing 777) and aviation gasoline (100LL) has a $19.4/gal tax that goes directly to the Feds for the purposes of the air transportation system. That includes ATC.  Tulsa has an additional fuel flow fee, $.15/gal I believe, at TUL and RVS which goes to Tulsa airports.  The present price of airplane gas is over $5/gal at RVS.  It was $3.80 at Henryetta a few weeks ago.  Granted, there are services at RVS that are not available at Henryetta but many of the services are related to the Fixed Base Operator (FBO) such as crew lounges, courtesy cars, and computers to obtain weather information.  The FBO provides them, not the government.  At many small airports, there are no services. No fuel, no restrooms, not even a place to get out of the sun while waiting to get picked up. There are all kinds of levels of service in between Full Service airports like TUL and no services.

http://www.nbaa.org/advocacy/issues/modernization/fuel-tax.php

The big airports are, of course, built by the government.  The Airport Authority gets income from a lot of sources.  I pay ground rent for the land my hangar sits on at RVS.  We could argue about the price relative to other storage in town but the fact remains that use of the land is not free. I also have to provide liability insurance for the Airport Authority for my hangar.  If some one breaks into my hangar and hurts themself and then sues me and/or the airport authority, my insurance covers the first $1 Million.  I am not arguing the fairness, only that it is another expense. Do you have to pay that at a mini-storage on top of the rent? At places like TUL, the concessions and other activities pay fees  to the airport for the privilege of being there. There is also the previously mentioned fuel flow fee.  I don't know the balance of money at the airport but it it NOT All coming from the general fund. There are also matching grants from the FAA which, ideally, come from the fuel tax.

Landing fees for small airplanes are not particularly common around here but a lot of places will have a ramp fee or overnight parking fee for even small planes.  Sometimes the ramp fee will be waived if fuel is purchased.  I (actually my boss, I was co-pilot) encountered landing fees at some smaller airports in the more congested areas along the east coast about 10 years ago.

Just like roads, airports bring in business that may not otherwise be there so the balance of the subsidy is difficult to determine.

[Red Arrow]

They are more likely to use the roads more. They are more likely to fly more often, they are more likely to own a business. So yeah, the wealthier you are, the more likely you are to rely upon the resources of the state, just not in the form of cash payments. Ironic, isn't it?

In this part of the country, I am not convinced the wealthy use roads more than the average person. The particular roads they use may be different. Average Joe drives to work and gets groceries etc.  How about the weekend trip to the lake with the Bass boat.  You don't need to be a millionaire to have a little fun.  Boats and motors have user fees involved too. Still no totally free ride but again many of the middle class participate.  If you live in a place like NYC, most people use public transportation of some sort. Almost all public transit is subsidized which is OK by me.  Judging by airport crowds, especially on holidays, middle income America flys a lot too.  Granted, wealthy people are more likely to own a business that employs many others.  There are a lot of small business that may only be the owner and a helper or two.  I am thinking specifically of businesses like lawn and tree services.

So yeah, maybe the wealthy use more services from the state than they would like to admit but I don't believe it is a foregone conclusion that the wealthy use a disproportionate amount of state services.   It is highly unlikely that the wealthy will require food stamps, free lunch for school kids, transportation for the physically impaired (no intention to insult anyone if I used the wrong PC term) and other programs available. I am not judging their worth here, only their cost and who is likely to use them.

[guido911]

So you don't think that taxes should be based on a percentage of yoru income?

Nope. Particularly since what, 47% pay no federal tax despite earning income. Everyone should pay since everyone enjoys the benefits of living here.

[bokworker]

Thanks for those responses Red. I am not up on the aviation industry and yet I do know as a regular business traveler that there are any number of fees and taxes paid that I would assume go to cover the cost of the FAA and TSA among others. Maybe that is a bad assumption I just know the fees in addition to the air fare are not immaterial. In any event, these are user fees paid for by those individuals that use the air transportation network. Hence, if you don't fly you don't pay.

I just cant get my mind around the wealthy using roads more often...maybe because each of their kids has a car? But again, I don't suspect that miles driven is correlated to income above a certain level. Maybe so when you go from below the poverty line where a bigger share of individuals don't own cars. And yes, a wealthy individual can own multiple cars but they can only drive one at a time.

When I think of state resources I think about the items you mentioned...food stamps, welfare, subsidized rent, etc and in that arena the wealthy do not use state resources at a higher level.

[guido911]

You pay more because we think your money is better than the other people's money. We really just can't get enough of it. It's only natural that we use the power of the state to take as much of it as we can.

Finally someone gets it.

[bokworker]

Nope. Particularly since what, 47% pay no federal tax despite earning income. Everyone should pay since everyone enjoys the benefits of living here.

While I am not sure I am totally with you that taxes should not be tied to income we both point to the same issue about the number of Americans who do not pay income tax.

Nathan, does the concept of one man on vote ring a bell? In excess of 40% of our populace pays no income taxes and yet their vote counts just as much as the person making a gazzillion dollars a year. Those at the top are not running the show..or better put, are periously close to having no say whatsoever. The second that the non tax payers of this country exceed's 50.1% we are screwed. You have huge numbers of people that are entirely unaffected by tax policy, as it now stands, shouting to the heavens that our tax code is unfair. What they are really saying is do something to make my status even more secure. and they have the power to vote to make it so and that makes elected officials pander to their vote.

[bokworker]

Finally someone gets it.

I think we vs us was being sarcastic... and yet in his sarcasm is a grain of truth

[Red Arrow]

I think it's kind of ridiculous that the 10 millionth dollar is treated equally to the 500,000th dollar.

I don't.  I'll go along with treating the 500,000th dollar differently than the 5000th dollar. Everyone needs that 5000th dollar to live.  It's a matter of degree.

Using the Tax Rate Schedule from the 2006 (first one I found in my file cabinet) 1040 Forms and Instructions booklet, page 84

$15,107.50 + [.28 x ($10,000,000 - $74,200)] = $2,794,331.50

$15,107.50 + [.28 x ($500,000 - $74,200)] = $134,331.50

Even at a flat rate of 28% above taxable income of $74,200, you will have a difficult time convincing me that the guy with $10,000,000 income did not pay more tax than the guy with $500,000 income.  This obviously excludes tricky tax avoidance schemes which I would agree need to be closed. Whether or not Capital gains should be treated differently is also not intended to be  part of this example Herion.

For those who insist that the higher income person pay a higher percentage of their income in taxes:

$2,794,331.50 / $134,331.50 = 20.8

$10,000,000 / $500,000 = 20.0

The $10 Million guy earned 20 times the $500 K guy but paid 20.8 times the taxes due to the first $74,200 being taxed at lower rates than 28%.

$2,794,331.50 - (20 x $134,331,50) = $107,701.50 

I'd sure like to have an extra $107K