The mortgage interest deduction probably should not be available for beach homes and yachts, but I would rather subsidize the yacht builders through a tax break for those who buy them, then build more "Cabrini Greens" to trap poor people in crime ridden ghettos for the rest of their lives.

The only major problem I have with his ideas is that he wants to tax all capital gains at income tax levels (which is insane to do for middle class and lower class people who own some stock). I prefer Romney's idea of not taxing anyone with an income under $100K on capital gains. It encourages investment and helps to keep the government interested in Wall Street by having it effect more people.

The solution is simple. A flat tax with no deductions or credits would tax all income equally. You could exempt income up to subsistence levels. Eliminating corporate taxes would cut overhead, and in any case, they are paid by customers, not corporations. Of course, this would eliminate the ability of Congress to dispense our money to buy campaign contributions, so it will never fly.

Ahh, more wealth envy.

You should take your cue from the failure of the "luxury tax". Intended to force yacht buyers to pay more - and to get money, of course, for a purpose unclear to me - it instead put tens of thousands of people in Florida alone out of work, as anyone with more than the half-a-brain limit for a Congressman could see that 10% of a million bucks could pay for a fine yacht to be shipped from the Netherlands (Feadship) or Singapore (Rudy Choi).

Wealth envy is so easy. I mean, why should we not be allowed to interfere with the charter of a corporation and make a CEO travel without bodyguards? Why not interfere with the corporate board's provision that company execs travel seperately, so that the company is not beheaded in a single accident? Why not make the company officer take a commercial flight, which does not go either where she needs to be or when she needs to be somewhere - if we can just force her to be ordinary schmoes like the rest of us?

Do not miss a fundamental thing about money while bitching about those who have it: people who know how money works (and that it is NOT cash!) get it and keep it -- and every single measure to "punish the rich" makes it HARDER for those who are not!

Sorry, radwaste, this can't be squeezed into the wealth envy hole. These are tax *breaks* being given to things that preferentially favor the wealthy and the entitled. These are direct and indirect subsidies only available to those who have giant stacks of money that have almost no benefit to the economy. These are massive distortions in the tax code that could be got rid of by simplifying it.

I agree that we shouldn't "punish" the rich. But rewarding the rich -- especially a very specific kind of rich person -- is just as bad. Level the playing field and let the market play itself out.

In regards to the jets, I will point out that general aviation pays license fees, fuel taxes, and landing fees that help pay for air traffic control and airport facilities. I was not aware that the tax code allowed aircraft owners to dodge property taxes by claiming that they need the aircraft for "security" -- if true, that's definitely a loophole that ought to be closed.

A few years ago, Warren Buffett was taking up the issue of having millionaires pay more in taxes to produce more revenue for the government. However, he didn't mention that he (figuratively) has a 10-story building full of accountants whose main job is to make sure he pays as few taxes as possible. And then he also doesn't mention that he gets to write off all those accountants' salaries as the cost of tax preparation. This is what it means to be rich.

The benefit of use of air traffic control paid for by chumps flying
commercial is essentially the same as the benefit of road traffic
control paid for by chumps riding the bus.

Does Kristof think that only cars pay a gas tax?

Another reason for favorable tax treatment of planes and yachts is if the rich have to pay more in taxes on yachts and planes, they just won't buy them. That means manufacturers will go out of business which means middle class laborers will lose their jobs.

But I'm o.k. with removing favorable tax treatment of expensive toys. I'd like to see Al Gore and CEO's travel commercial like the rest of us.

The only major problem I have with his ideas is that he wants to tax all capital gains at income tax levels (which is insane to do for middle class and lower class people who own some stock).

Why is that insane? The problem with the capital gains tax is that it applies to nominal gains rather than real gains. Just apply a price index (e.g. the gdp deflator) to the purchase price and then calculate the real gain. If you've a real loss, you will have a credit balance with the tax collectors which can be worked off over time with assessments on future gains or future income. (The process of administration would be complicated where you have transactions which are not arms-length, of course).

(The ratio of real capital gains to income flows in a given year is usually quite modest, btw - IIRC, less than .05).

The solution is simple. A flat tax with no deductions or credits would tax all income equally. You could exempt income up to subsistence levels.

An improvement over the current situation. Just to point out that such a surtax is a two bracket tax, 0% up to $x per household member and the general marginal rate above that.

An alternative would be a flat rate on all income as defined by the Bureau of Economic Analysis (with some conventions applied to recipients of Medicare, Medicaid, Social Security, employee fringe benefits, and certain types of retirement income) to which you would apply general credit for each tax payer and each dependent and then a geezer credit for each person who has passed a given age (say, 64) and each person who has been adjudicated as disabled. An identical flat rate could be applied to real capital gains. For people whose income falls below a certain threshhold, their liability would be negative. The net cash return to then could then be capped at a particular percentage of the filer's earned income; such a cap could then be relaxed for the elderly and disabled.

In effect, you envelop and replace the EITC and you can then also eliminate long-term doles for the working aged and able-bodied population and eliminate all subsidies to mundane expenditure (e.g. food stamps, housing vouchers, utility subsidies, &c.).

Maybe I'm crazy, but every year removing the income tax and replacing it with a sales tax sounds better and better. The rich who buy expensive luxury crap would pay lots and the poor who buy little would pay little. It would have (for me anyway) to be a true sales tax. So, rent/lease items wouldn't count. I would probably also exclude food and resale (i.e. used) goods.

You'd still get higher taxes in more expensive areas, but you wouldn't have so much class clashing (which is a problem in expensive areas where a high income labels you "rich" nationally but can be lower-middle class or less locally).

Yes, there would be problems with it, but that tax code could be written (including grandfathering things like Roth IRAs) in probably 100 pages or less. That would make it about a zillion times more efficient than the current code. Also, we could get rid of about 90% of the IRS.

What the moderatrix refers to is the failure to assess tolls on the provision of public services. This is unpopular, but it does generate efficiency gains to align costs and benefits in that manner. In effect, the cost of air traffic control and airport maintenance is borne by clients of the facility rather than the public-in-general in their capacity as income earners or property-holders.

Ideally, our limited-access highways would be maintained by toll revenue alone, our airports would be maintained by toll revenue (or a mix of toll revenue and excises on tickets), and our public-road network would be maintained by a mix of fuel taxes and auto registration fees. I've done some back of the envelope calculating, and it's a reasonable wager that the fuel excise necessary to pay the bills would be somewhat north of $3 per gallon in New York state, perhaps higher or lower elsewhere. This would be unpopular but better than the current system of financing road maintenance.

Maybe I'm crazy, but every year removing the income tax and replacing it with a sales tax sounds better and better. The rich who buy expensive luxury crap would pay lots and the poor who buy little would pay little.

No. Consumption taxes have their uses, but they are regressive in their effects. If you assess consumption taxes, you should have some re-distribution through the income tax code to hold harmless the impecunious (defining the impecunious people whose per capita personal income is less than half the national means).

>Another reason for favorable tax treatment of planes and yachts is if the rich have to pay more in taxes on yachts and planes, they just won't buy them. .....my comment

>Silly argument...Amy's comment to me.

Amy, I agree that if you read that one sentence, it is a silly argument.

However, the rest of my post( which may not have been as clear as it could have been ) points out the unintended consequence of middle class workers who build yachts and planes could lose their jobs if the rich don't buy them.

Example: in 1991, congress passed a "Luxury Tax" on expensive items such as watches, furs, autos(over $30,000), yachts ( over $100,000 ) and planes (over $250,000). It was passed as a revenue raising measure. It was repealed in 1993 for several reasons, one of which it "...negatively impacted the income of sellers of luxury items." ...Wikipedia

Other sites discussing the "luxury tax" say it was repealed because of concern for the middle class worker who builds these luxury items when sales fall.

Taxes do matter, even for the rich. All laws have unintended consequences.

But for the record, I did say I was in favor of doing away with favorable tax treatment even if sellers of luxury items went out of business and laborers lost their jobs just so I could see CEO's and Al Gore travel like the rest of us.

If you incorporate progressivity into your income tax code (and your gift and inheritance tax code), the only purpose a luxury tax serves is as a social and political gesture.

>...the only purpose a luxury tax serves is a social and political gesture. ...Art Deco

Art: I agree with you.

My larger point is, though, is that if the media reports that congress is discussing changes to the taxing of yachts and planes, whether through a luxury tax or removing favorable tax treatment, it is the little guy on the assembly line that builds those items who worries if that ultimately means he will lose his job.

Any ad valorem excise will have economic effects which distribute the economic costs between the producer and consumer. Theoretically, the precise distribution depends on the characteristics of the production and utility functions of the respective parties. The producer's share of the cost is borne by various stakeholders thereof - ownership and employees - and the employee share is divvied up between salaried and wage earning employees.

It all depends on a number of unspecified ifs, of course, but I would wager that the share of the economic costs borne by wage-earners at the company is fairly modest.

A schedule of excises on externalities would be inherently rococo. That aside, the simpler the system, the better.

And I'm also for smaller government.

There's a great deal of crud in the federal budget. The whole complex would benefit from a good power washing. The thing is, though, that the crud field amounts to about 15% of the total, give or take. Putting benefits for the elderly and disabled on an actuarially sound basis and of sensible dimensions will require cohort by cohort adjustment of eligibility standards to allow client populations to adapt; that's going to take time. Looking at the history of the last 75 years, and rejecting Ronulan tripe about the sources of and prudent responses to international conflict, real time federal purchases of goods and services likely cannot fall much below 10% of domestic product on a sustained basis. Over and above that you have debt service, revenue sharing with state and local government, and social insurance and redistribution programs. You can do a great deal to reduce the scope of federal activity, the number of agencies, and to enhance the discretion of more particular units of government (by, for example, just cutting checks to the more impecunious states without conditions and ending direct financial pipelines to local governments). When all is said and done, though, I suspect attempting to suppress federal purchases and transfers to a level below 20% of gdp would prove an unstable equilibrium.

Sorry, silly argument.

People who are rich enough to buy a private jet don't do it because they get a tax break.

Posted by: Amy Alkon at March 27, 2014 8:53 AM

Oh, They will still be buying private jets, they will just be buying them in another country with more favorable tax treatment and registering them there. Possibly living there also.

When you understand the tax code, you start realizing why all these silly "tax the rich" schemes, and get rid of the tax breaks schemes don't work.

The world is a big place, and there is always a tax haven somewhere with more favorable rules than the US.

"People who are rich enough to buy a private jet don't do it because they get a tax break."

For the third time, they buy WHERE there is a break of some kind.

Screw those people with their fancy yachts and jets, huh?

Not gonna happen - and again: every restriction you place makes it harder for others to amass wealth. You're not taking a dime from a professional money handler.

When you understand the tax code, you start realizing why all these silly "tax the rich" schemes, and get rid of the tax breaks schemes don't work.

'Don't work' toward what end? Are you really arguing that it is pareto efficient to have cross subsidies of randomly selected production and consumption decisions incorporated into the tax code? You provide deductions and credits for boat purchases, you have to make up for it by raising marginal rates on people who do not purchase boats.

For the third time, they buy WHERE there is a break of some kind.

A break would influence their purchase decision by influencing the effective cost to the consumer, but there's a number of influences on that decision, such as the utility of the purchaser, the features of the boat, and the portion of the price derived from the manufacturers costs and the state of the market.

There's a large mass of people who simply are not interested in boating at any price. Keep in mind also that people who purchase boats may only be mildly price sensitive within a certain range of options, so the tax break will not cause them to shift their purchasing pattern if there is a discrete feature available only on models not subject to the break.

'Don't work' toward what end? Are you really arguing that it is pareto efficient to have cross subsidies of randomly selected production and consumption decisions incorporated into the tax code? You provide deductions and credits for boat purchases, you have to make up for it by raising marginal rates on people who do not purchase boats.

Posted by: Art Deco at March 27, 2014 2:44 PM

Efficiency has nothing to do with it, and you sound like you have read too much Keynes.

No, what I am arguing is the tax code is what it is because, the people with money, and the politicians want it to be that way.

Tax systems by their nature will always benefit the wealthy and screw the middle class. That is what they are designed to do.

This isn't some ephemeral economics debate where you get credit for good ideas,that have no practical value.

Feasibility is the issue here.

It is simple really, the tax breaks are in the code, because businesses and wealthy people can buy influence with the government.
Those same people are not going to sit still for being fleeced, and will move their capital and business elsewhere, when the state or the feds get greedy.
They can easily decamp to another state like Texas, or another country like the Bahamas, and take their assets with them.

No matter how much "econo speak" you throw around, people will continue to do what is in their best interests financially,

Please detail your method for holding the wealthy prisoner, and making them pay "their fair share"

Better yet, explain how you plan to replace the current tax code, and actually get it through congress.

The question at hand is what is good policy. That does not appear to interest you. What appears to interest you is telling other people they are stupid. Which does not much interest me.

The question at hand is what is good policy. That does not appear to interest you. What appears to interest you is telling other people they are stupid. Which does not much interest me.

Posted by: Art Deco at March 27, 2014 3:45 PM

Good policy cannot be created in a vacuum. It must recognize the political and economic realities on the ground.

And,you are correct, ephemeral debates about what looks good on paper, but has no practical application, do not interest me.

So you can prattle on about "cross subsidies of randomly selected production and consumption decisions". But that was never the issue.

It was pretentious of you to bring it up, and was designed to obscure the fact, that there is no substance to your arguments.

"and social insurance and redistribution programs..."

Why do we need any of those things? What good do they do?

Maybe I'm crazy, but every year removing the income tax and replacing it with a sales tax sounds better and better. The rich who buy expensive luxury crap would pay lots and the poor who buy little would pay little. It would have (for me anyway) to be a true sales tax. So, rent/lease items wouldn't count. I would probably also exclude food and resale (i.e. used) goods. -- Shannon M. Howell at March 27, 2014 9:17 AM

I'm going to just sort of mention a thought and give you some ideas and let you evaluate it Sixteenth Amendment:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Without the 16th the IRS doesn't exist. The right of the Federal government to tax you doesn't exist. The 15K+ pages of the IRS code doesn't exist.

So making a national sales tax means that we would have to amend the Constitution. If there is no limit in whatever amendment they could go to a 300% sales tax rate. Or they can tax food, or housing, or clothing, or all prepared items (i.e. everything that isn't fabric on a bolt and plant seeds). And that may not be the limit. What if they tax every bolt, nut and washer (finished products) that go into making your car. Then they tax you for buying the car?

Then add in that they may not repeal the 16th on top of that.

And if the National Sales Tax amendment doesn't contain the 16th repeal they could pass it and still have the 16th.

So before you go for the national sales tax, consider the issues that would have to be overcome.

Now to modify the 16th that the top tax rate on all income is 15% and the government has to live within that number short of 2/3 vote of both houses every single year then we might get to some sense.

Well for all of you saying they would buy those pricy items somewhere else-they wouldn't.

Why? Because in luxury goods like that the country of origin and of purchase is VERY important.

Anyways I don't have wealth envy what I see is a bias where we subsidize the wealthy in this country and get told we better keep sucking the rich's cock or they'll leave us.

If you wanna be an ultra wealthy Walton great-just don't make me subsidize your employees.

"Well for all of you saying they would buy those pricy items somewhere else-they wouldn't."

Plus-ridiculous. They DO. All you have to do is actually TALK to someone who has that sort of purchasing power. I have, at the now-defunct Moorings Yacht Services in Miami: a megayacht repair yard. There is no feature you cannot get on a yacht from Blohm & Voss, Feadship, Rudy Choi, etc.... Maybe you should look these manufacturers up.

I've seen one stateroom with over a million bucks invested in it. Think a 46' Bertram sports-fisherman is big? These yachts carry one of those as a dinghy. Think you can't get something on a yacht that has its own helicopter pad?

There is no end to public indignation that some people do not have to put up with the daily struggle. They really want to see everybody ride in coach, and get groped by the TSA, never noticing that this enables government grasping for power in their name.

I for one welcome our wealthy overlords and volunteer to help round up the envious and unemployed to toil in their sugar mines.

"Why? Because in luxury goods like that the country of origin and of purchase is VERY important."

It is, but -- it often works the opposite way of what you think. Often, in America, luxury items are seen as having more status, not less, if they are imported vs. manufactured domestically. E.g., of the world's most valuable luxury automobiles, none are of American manufacture -- they are all from Britian, Italy, Germany, or Japan. Not that similar items aren't made in America, but none of them have the social cache of a Rolls or a Lamborghini.

And everyone needs to keep in mind that there is a difference between subsidizing the activities of the wealthy, and imposing surtaxes on them. And one is not a cure for the other.

Uh I have, my dad used to design stuff for them (nothing to do with the yacht themselves, just accessories). .

Like I said the country of origin is very important in all luxury goods. I was going to list which countries are acceptable to the wealthy and which aren't. But I ended up not doing that.

Anyways I looked up a list of yacht manufacturers and yup 95% of them fall under what I see in terms of country of origin in other luxury goods. So they're not just competing based on pricing.

So I'm supposed to sit here and let them get subsidizes because ultimately I'm just jealous. I've lived with poor people and middle class and I just don't see that. Nobody wants the rich to fly coach or eat plebeian food.

What I do see is frustration that the wealthy get a different set of rules.

"It is, but -- it often works the opposite way of what you think. "

Yup I've always been aware of that. I lived in an area that sells a lot of luxury goods.

So can we agree luxury stuff is not based solely on pricing?

And Britain isn't considered a luxury car manufacturer anymore. Just telling you this as a car person. Not being nit picky. They're pretty much dead in that area.

"So I'm supposed to sit here and let them get subsidizes because ultimately I'm just jealous. "

No no no. Everyone should have to play by the same rules. The tax code should neither favor wealthy people, nor should it punish them simply for being wealthy. It's important to sort out which is which, and it doesn't help when writers like Kristof get facts wrong or make unsupported assertions.

We already have a tax code that is quite punitive towards people who aspire to be successful. The people who push highly progressive tax rates always claim that it's to prevent wealth stratification, but it tends to have the opposite effect: people who are already wealthy can affort armies of accountants who make sure they pay the absolute minimum tax possible, while people who are working their way up the ladder get socked with huge tax bills. Our regulatory system adds to this by successively adding on more layers of regulation and bureaucracy as a business grows. That's the real danger of "soak the wealthy" schemes: they wind up dividing us into people who have the resources to game the system, and people who don't.

We already have a tax code that is quite punitive towards people who aspire to be successful.

The ultimate marginal rate for federal taxes is currently shy of 40%. It was lower during most of the period between 1986 and 2011, but higher between 1932 and 1986. The ultimate marginal rate for state taxes varies quite a bit, but averages to 6.6%.

Functional marginal rates on wage and salary income are of course higher due to payroll taxes (which turn into capitations if your salary is high enough).

I suspect there is a diminishing marginal return to the armies of accountants and to arranging one's affairs to avoid tax liabilities. I know someone who does this sort of work (for an established firm) and her firm charges about $800 to do an individual federal and state returns for a her clients with considerable private income; I do not think that's out of reach for up and coming bourgeois. I think it gets pricier if your client has a mess of foreign income, or is invested in real estate or futures and options, or has a family business.

I think the real imperative should be cross-compensating the impecunious. You assess property taxes, the assessment is largely incorporated into rents. You assess sales taxes, people who do not have much margin to save tend to be most severely affected (unless you exempt staples, which creates other problems). You assess value added taxes, I think pretty much the same deal. You assess payroll taxes, same deal. So, your generic income tax should ideally counteract the economic effects of these other taxes and perhaps supply low wage workers with some extra to take the edge off the market (in lieu of means-tested welfare programs). That's going to require a considerable marginal rate (conjoined to a general credit), even if it does not vary from household to household.

"I suspect there is a diminishing marginal return to the armies of accountants and to arranging one's affairs to avoid tax liabilities. I know someone who does this sort of work (for an established firm) and her firm charges about $800 to do an individual federal and state returns for a her clients with considerable private income; I do not think that's out of reach for up and coming bourgeois. I think it gets pricier if your client has a mess of foreign income, or is invested in real estate or futures and options, or has a family business."

It isn't hiring an accountant to do you taxes that is the expensive part of wealth building.

It is setting up your investments, to take advantage of the various tax loopholes, credits, and dodges to keep it out of reach of the federal and state governments not to mention, taxes in foreign countries, on foreign investments.

That requires a sophisticated investment advisor, and an international lawyer. Not a simple accountant.
These,people charge fees as a percentage of the profits of the wealth they manage for you. Not a flat rate.

With yachts, it is also not necessarily the initial purchase price that is the deal breaker. It is the taxes, insurance, and port fees that are accessed yearly in some venues, and not at all in others.

Remember the media ignored scandal about John Kerry not registering his yacht in Massachusetts? I think it saved him hundreds of thousands of dollars.

http://yachtpals.com/kerry-yacht-9119

On a larger scale you will see a lot of cargo ships flagged in third world countries, because the costs of operation and also the tax structure of those countries is advantageous to the shipping industry.

Here is a little information on vessel flagging.

http://www.corbitamaritime.com/Flagging_of_Vessels/

"Exactly. I post this about corporate welfare as well, but Rad never accuses me of "wealth envy" then!"

Correct. In those cases, I point out repeatedly that not every Inc. is Exxon, all of the taxes get passed on to the consumer, the corporation is a fictional entity just like a state government, its charter is its "Constitution" -- and that it is the business of the Board of Directors what the CEO should be paid. Not the public.

Which is burning up with wealth envy, and doesn't give a DAMN about anything other than what someone is paid.

It isn't hiring an accountant to do you taxes that is the expensive part of wealth building.

The investment counselor / chartered financial analyst / assets manager / trust officer typically works for a share of the assets on an account (which is commonly a large share of the real return). There are conventions in New York State law (and presumably other states) which define income and customary fees for trust administration (which includes both custody and assets management), but I do not think these apply to other sorts of accounts. The fees will be proportionate to assets but do not increase pari passu with the dimensions of an account.

The costs associated with account administration are such that Nouriel Roubini among others has said its a waste for all but a few to own securities. Mutual funds will do.

Relatively few people make themselves wealthy through trading in abstract assets. Michael Kinsley did a survey of the Forbes 400 some years back and found that if you deducted those who had inherited great wealth, about 11% of the remainder made their fortunes this way. People trade to preserve and make modest extensions to fortunes got by other means.

Relatively few people make themselves wealthy through trading in abstract assets. Michael Kinsley did a survey of the Forbes 400 some years back and found that if you deducted those who had inherited great wealth, about 11% of the remainder made their fortunes this way. People trade to preserve and make modest extensions to fortunes got by other means.

Posted by: Art Deco at March 29, 2014 5:38 AM

Im not sure what your point is. Asset management doesnt generally build wealth. It is what you do after you are already wealthy.

Owning and running a business is what builds wealth, and structuring a business to avoid taxes, and take advantage of location, and trade agreements is even more complex than straight up asset management.

Perhaps if you didnt see this issue through the lens of living in the state of New York, one of the most tax heavy and wealth killing locations, in the entire country, you would understand why Texas, and many other states and foreign countries, are rapidly siphoning assets, people and growth out of California, and New York ?

http://libn.com/2013/10/09/new-york-worst-in-state-business-tax-climate/

Make up your mind, chump.

Make up your mind, chump.

Posted by: Art Deco at March 29, 2014 2:20 PM

I don't think I am showing any inconsistency here. My point has always been that the rich with investments, and also businesses will structure both their tax liability and their purchasing decisions to cost them the least money possible.

Taxes, and licensing fees matter, in some cases a great deal more than the purchase price.

This behavior will include moving their assets, the production and themselves to other states and countries if necessarily to protect the bottom line.

The US, has been systematically driving American assets off shore by structuring taxes in such a way, to punish both wealth, and manufacturing/ energy production businesses in the US.

What was your point Art Deco? That this doesn't happen?

I cant tell, because all the Econo bullshit you spew, doesn't hang together well enough to form a complete thought.