I also know that all of those (and more) are part of tax policies. Having progressive tax policies is a whole lot more than just a high marginal tax rate.
Obviously. Which is why I didn’t respond to it directly.
I understand that correlation doesn’t equal causation, but it suuuure looks like progressive tax policies (and when I wrote “tax policies” I most definitely didn’t mean just income tax rates) actually can make a difference in inequality!
That’s un-answerable as written, because the “other tax policies which are not marginal rates” are unspecified.
I’m not on that hill Kady, and it sure looks like you are willfully ignoring that fact to try to make the discussion only about high marginal tax rates.
I often do, because it’s one of the collectivist’s favorite shibboleths these last thirty years or so. Somehow, Reagan destroyed everything good about America because the top marginal rate dropped from 70% to 28% under his tenure. Clinton then proved that marginal rates dont matter by having a boom economy at 39.6%. Both statements are barf-able, to anyone who can do basic arithmetic and took Econ 101. (Of course, they rarely refer to “marginal rates”; they prefer to be more nebulous than that.)
But while you’re looking at that empty hill, think about this: If there really were “high rates that nobody paid,” then there is no fiscal reason for not having them, is there?
Sure there is; tax efficiency, not distorting the economy, and putting money to productive rather than unproductive use to grow the economy for the benefit of all. What happened was that to lower their AGI’s, the upper quintile engaged in legal financial engineering which amounted to investing (for example) $2000 in a government-approved scheme that returned $250 but got you a $10,000 tax writeoff in the process. Nobody benefited from the transaction. Here’s the Wikipedia section which discusses it:
Passive losses and tax shelters
By enacting 26 U.S.C. § 469 (relating to limitations on deductions for passive activity losses and limitations on passive activity credits) to remove many tax shelters, especially for real estate investments, the Act significantly decreased the value of many such investments which had been held in large part for their tax-advantaged status, as opposed to the non-tax aspects of their profitability. The enactment of section 469 may have contributed to the end of the real estate boom of the early-to-mid 1980s, as well as to the savings and loan crisis.
Prior to 1986, much real estate investment was done by passive investors. It was common for syndicates of investors to pool their resources to invest in commercial or residential property. Investors would then hire management companies to run the operation of the property. TRA 86 reduced the value of these investments by limiting the extent to which losses associated with them could be deducted from the investor’s gross income. This value reduction, in turn, encouraged the holders of loss-generating properties to try to sell them, which contributed further to the problem of sinking real estate values.
Mortgages and similar real property loans constituted a significant portion of the asset portfolios of savings and loan associations. Significant declines in the market value of real properties resulted in the erosion of the value of these institutions’ major assets.
Some economists consider the net long-term effect of eliminating tax shelters and other distortions to be positive for the economy, by redirecting money to productive investments.
To help less-affluent landlords, TRA86 gave a $25,000 net rental loss deduction, provided that the home was not personally used for the greater of 14 days or 10% of rental days, and adjusted gross income was less than $100,000 (pro-rated phase-out through $150,000).
One of my strongest recollections of TRA 86 was the last minute surprise regarding real estate tax shelters. There was a general consensus that tax- motivated investments were bad for the country. They resulted in transactions which did not make economic sense absent the tax benefits. Further, many people believed that the wealthy had access to tax shelters that were not available to the middle class, undermining our tax system which is based on voluntary compliance.
The general consensus was that an investment that made no economic sense sans the tax benefits was inefficient. Also, the other problem was that because of the complications of these schemes, you better have an accountant doing your taxes, thus limiting their benefits to those who could afford the accountants (being the days before TurboTax and HR Block); thus, the wealthy. And this consensus was borne out after the shelters were revoked; money went flying into real estate, the stock market, and investment, and out of those nonperforming tax-advantaged investments.
If it really makes no difference, tax revenue wise, to have high marginal tax rates, then your objection is political.
You really should have waited for me to refute your contention rather than assume that I couldn’t. You’ve got egg all over your face, now.
This leads me to conclude that your vehement objection and willfully obtuse ignoring of my actual arguments are because you have a political objection to reducing inequality.
If you want to know my motives, ask me. Don’t guess. My belief in economic freedom is because I WISH to REDUCE inequality, not perpetrate it. Have you not noticed how the growth of income inequality flattens when an economy is booming, and accelerates during periods of recession and slow economic growth?
The current world situation shows that countries that have more PROGRESSIVE TAX POLICIES than the US also have lower inequality, higher social mobility, a higher quality of life and higher happiness than the US. Progressive tax policies are proven empirically to be better for the 99% and to reduce inequality.
Chuckles. Well, that’s kind of hard to respond to, because the terms “higher quality of life” and “higher happiness” are highly subjective, and the results of those “surveys” are generally pre-determined by what factors the authors of the surveys choose to put in them.
So, anecdote: I have relatives in Sweden, Germany, Belgium, the Netherlands, and Austria. If I remove the ones in Belgium and Austria from the equation (because they are fabulously wealthy), and just focus on the ones that are middle class, I wouldn’t trade my “quality of life” for theirs, ever. In fact, my sister in law in Germany wants to move back to the States after 20 years over there now that she’s an empty nester, and my sister in law in Sweden and my nephew there (he’s a doctor) both have their green cards (which took years to get), and if they can get my stick-in-the-mud brother in law to agree, they’d both be here in a heartbeat. (Unlikely to occur, but there’s always hope.)
That’s anecdotal, but it illustrates the difficulty in relying on such subjective data. Confirmation bias rears its head.