Inching Away From Income Tax

At that low level of savings, and the distribution of income relative to lower quintiles demands that a substantial proportion of high quintile income be expended on consumption as opposed to investment/savings.

Not if there is dis-savings at the lower levels.

Your perception that in the United States high incomes must invest more proportionately has no real basis to it, and is not supported by any study I have ever been able to locate.

I'll look for one for you.

You'll get a kick out of this. I gave command to post this, went on search for the statistics you say you have never been able to locate, went to the BLS, and immediately found what you have been looking for. It supports the common sense belief that the more one earns the more one saves. As it turned out, my command to post didn't take and I can link you to the report you've been looking for right now. I'm sure that other stats abound showing the same thing.

BLS Stats

A bit of a problem here with your BLS stats. ftp://ftp.bls.gov/pub/special.requests/ce/standard/2000/income.txt

The table tells us nothing definitive so we can relate it to tax burdens of a particular persons as characterised by longterm income group across a lifetime where it counts, nor does it report all the sources of expended dollars available for each group's spending.

From a look at the expenditures and reported income sources at each level it is clear that there are capital subsidies for the lower brackets (not welfare or SS) declining in importance as we move up the scale of income. This table indicates a fairly close and proportionate relationship between actual income available for expenditure and personal expenditure reported if we assume the excess expenditure's arise from inherited, saved or invested wealth.

Income	less than $5,000	5,000 to 9,999	10,000 to 14,999	15,000 to 19,999	20,000 to 29,999	30,000 to 39,999	40,000 to 49,999	50,000 to 59,999	greater than 60,000
Expenditure	17,946	15,703	21,199	24,331	29,852	35,609	42,323	49,245	75,964
Gross Income	1,942	7,192	12,245	17,070	23,666	32,720	41,498	54,432	102,578

How about a lifetime study that provides an understanding of the lifetime income as it relates to lifetime expenditure. An annual snapshot tells us little.

Note that lowest bracket on average owns a home worth $40,008. How did they come by it if they are chronically poor and not retired or living off an inherited wealth?

These numbers gives us few clues as to who has avg income of 1,942 and manages to spend nearly 18,000 dollars for example. Most of that expenditure is housing and transportation and food away from home with health care in the range of eating out. That group's income is clearly being subsidized in a manner not being reported as personal income in this table and they are pretty healthy folks. By the way the table does report welfare subsidies & SS payments and other government benefits that are included in the reported before tax income so the expenditure must be coming out of capital savings,

I know of no one actually recieving less than $5,000 capable of spending anything near 18,000 a year unless they are living off previously earned capital as in savings or capital from an annuity or inheritence.

Give us a study, not a table that can be reflects a lifetime income vs lifetime expenditure so we can establish the real burden of taxation and how it is distributed with respect to chronically poor vs the lifetime rich, and the rest of us mobile folk in between.

You will also not that it does not address the rich, but clumps the top together at what most consider to be upper middle income today.

It supports the common sense belief that the more one earns the more one saves.

Duh!! Savings in proportion to income does not preclude that result even at a net 3.4% rate.

However the table looks to me to supports the idea of the more one has saved out of prior earnings, the more likely they do not earn current income, but spend more than they receive as they grow beyond the need of a earnings and investment and rely more on aquired lifetime capital wealth to meet their needs.

Look at the table more closely, those folks with the avg $1,942 annual income, own $40,000 homes, and on average spend

$6,670 a year maintaining that home
$2,993 a year in transportation
$1000 a year eating out,
$900 a year in clothes,
$982 a year in medical care,
$986 a year in education and reading,
$330 a year in personal insurance & pensions
etc....

There grand $1,942 income includes $1,495 wages & salaries, interest, investment income, plus SS, public assistance, foodstamps, retirements, the whole ball of wax.

Seems to me you have something a bit scewed making this information useless for the purposes of determining real tax burdens as regards "poor" vs "rich" folks.

True but the clear trend is what common sense dictates: the moree you earn the less you spend.

Better take a closer look at the "income" hmmm don't see that in there at all, as income goes up so does expenditure.

The bottom rungs appear to be folks living on aquired capital of inheritence or a life time of saving, investment or whatever.

Perhaps you can provide the mix of expenditure from capital at the low end vs, savings that create that capital at the upper end.

Just where is the demarkation of poor folks that do not save that you are concerned about, and folks that don;t spend enough, by your sights, at the upper brackets? How much capital is each level expending in lieu of income and where does the capital come from and distribute through the income spectrum? There are the questions that has to be answered to understand the real distribution.

I would say, from the low absolute level of expenditures of $18K at the bottom level, that these are not Rich folks spending out of their ill gotten gains, but lower lifetime income folks who have manage to put abit away in savings and investments living off of retained capital from days of moderate income earnings.

Note they are not receiving appreciable SS, pensions, or government benefits. They are spending their own capital, and that capital has to come from somewhere, and that is either inheritence, lifetime savings/investment, or unreported gifts and they have decided to live a rather spartan life for them to come from wealthy roots.

Anecdotally, someone like Ross Perot makes about $100,000 million per year. If he spends $2,000,000 that's probably a lot. Therefore he just keeps getting richer.

And how does this being "richer" benefit him, as opposed to those who receive the benefit of his investing? If he ain't spending it, it is doing no immediate good for him, but being invested it is growing businesses providing wages and earnings for other folks.

Your analysis leaves out the contribution derived from his investments that accrue to others. What he saves and invests he is not spending, but others are in advancing the American economy. He can aquire no benefit until he spends his riches, even then the economy and everyone benefits.

Your view is far too simplistic. Being richer is not a bad thing, especially it accrues to the benefit of all those who participate in the american economy that invested wealth provides the infrastructure for.

I don't buy your premise that one getting richer is somehow not a reasonable thing to happen. Getting richer is what happens to us all in a dynamic economy.

Seems to me you have something a bit skewed making this information useless for the purposes of determining real tax burdens as regards "poor" vs "rich" folks.

The linked BLS Data shows the results by quintile. It clearly shows that the lower quintiles spend a larger % of their income. Which is exactly what common sense dictates. The question is: how does this affect the tax burden. Although I did not follow your earlier reported data for top 10%, bottom 10%, and middle 80%, I acknowledged that if it were correct I'd be inclined to favor an NRST. However I also knew that your methodology assumed that people at different income levels consume the same percent of income and I was virtually certain that was wrong to such a degree as to render your calculations meaningless. This BLS data supports my a priori belief.

The FCA offsets or partially offsets this effect. I'd like to see an analysis of tax burden that reflects reasonable assumptions regarding % of income consumed. I believe it would support something along the lines of my initial contention that the lower 10% will be about the same; the upper 10% will pay a disproportionately lower share of the total tax; and the middle 80% will pick up the slack. Furthermore, I believe within the top 10% the top 1% will benefit disproportionately to the other 9% and within the top 1% the top 1/10th of that group will benefit disproportionately vs. the other 9/10ths of 1%. In other words, while I like the structural features of NRST, I am convinced that analysis will indicate that it is a massive shift downward of the tax burden to the middle class (because of the safety net built in for the poor). I therefore conclude, the middle class will end up shouldering the tax burden, disproportionately.

Therefore, if NRST ever gets past the special interest lobby of tax lawyers and tax accountants who love the income tax and is seriously considered, the tax lawyers and accountants will CORRECTLY be able to demonstrate to the middle 80% that they are the suckers with the NRST tax. The facts are on their side. The only chance for success is to add a component such as the financial transaction tax that hits the higher income levels disproportionately. If it is built in at the appropriate level, the resulting tax burden will much more closely track the curent distribution and I would be an enthusiastic supporter. I hesitate to say (in view of prior reactions) I'd be an even more ardent supporter if the distribution of the tax burden were pushed up the income level scale since that is the direction I think it should go based on the principle that he who benefits most from the system should pay the most for its upkeep.

The NRST people do not help their credibility with superficial analysis that produce such feel good conclusions that everyone will pay less. Any plan to raise $1.5T in some new way will adversely affect some people and benefit others even if it is specifically designed to keep the burden where it is, by quintile. No serious effort along these lines appears to have been made by NRST. The very nature of the tax (as currently constituted) pushes the tax burden down the income level scale. FCA then counteracts the effect up to some point, thereby pushing the burden to the middle. A financial transactions tax is the perfect way to salvage the structural benefits of NRST without making suckers of the middle class.

I will say that your persistence did convince me that the structural benefits of the NRST are substantial and if the tax burden issue is addressed---either by my financial transaction tax concept or some other---it will be a beneficial reform. The dialogue has been interesting and informative but also very time consuming. For that reason, I'm going to make an effort to break away from it since I think we are both repeating ourselves. This post attempts to summarize my overall position.

Let's see, if I understand your complaint, your entire problem with the NRST appears to be it doesn't "tax the rich" enough.

To each his own opinion.

Taxation should be on the basis of benefit derived, not contribution to an economy. Expenditure is a much better measure of benefit derived than income(more a measure of contribution to the economy and society).

The overall rate of taxation is lowered for everyone, and cannot exceed hightest possible rate of 23% of gross income(assuming all income is applied to consumption). That my friend is the bottom line.

The Effective total federal tax rate as a function of expenditure under the NRST

Go which ever way you want, I see the NRST as being superior no matter how one slices it.

I do however agree this discussion is getting long in the tooth. And we both have summarised our views of the NRST for others consideration.

Have a good day.

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