France Imposed A 75% Tax On The Highest Incomes: It Didn’t Work And Here’s Why

Discussion in 'Political Discussions' started by Lerner, Oct 15, 2020.

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  1. Lerner

    Lerner Well-Known Member

    https://medium.com/@gainweightjournal2/france-imposed-a-75-tax-on-the-highest-incomes-it-didnt-work-and-here-s-why-546ccb832414

    How the Democratic left will change the US for worse.
     
  2. SteveFoerster

    SteveFoerster Resident Gadfly Staff Member

    It's behind the Medium paywall, so I can't read it, but the counter argument you can expect is the high tax rates in the U.S. during the Eisenhower administration coincided with rapid economic growth. (Of course, the U.S. was the only major industrialized country that didn't have to rebuild its war-shattered infrastructure, and capital is much more mobile in the 21st century than the 20th, so it's not a good counter argument, but it's one you can expect.)
     
  3. Vonnegut

    Vonnegut Active Member

    Article basically just references the Laffer curve, and that both the Federal Reserve and Georgetown University have determined that the peak of the Laffer Curve to be around 52%. With any tax rates beyond that, leading to an actual decline in tax revenue.
    [​IMG]
     
  4. Johann

    Johann Well-Known Member

    The Laffer curve is a product of the 70s and has its proponents - and those against.

    Good article here - Investopedia: https://www.investopedia.com/terms/l/laffercurve.asp

    Too bad the UK didn't know about it in the late 60s, when there was a 95% tax on highest-bracket earnings. Rich people adjusted, as Laffer would have predicted. Many British rock stars became "tax exiles."

    I think Laffer was right. People aren't stupid. If the tax bill barrier is too high - they'll find a way around. Many do, even if it isn't.
     
    Last edited: Oct 15, 2020
  5. SteveFoerster

    SteveFoerster Resident Gadfly Staff Member

    When you've even lost the Beatles, you've lost.



    Anyway, I don't think the controversy is whether the Laffer curve as a model works, but rather where various tax regimes might lie upon it.
     
  6. Vonnegut

    Vonnegut Active Member

    The Laffer curve is certainly more convoluted and likely elastic than the perfect mirrored arcs that typically represent it, as shown above, but the general concept behind it has me conceptually convinced of it's existence.

    While I'm an advocate of a progressive tax scale, I'd really just be happy with a reasonably equitable effective tax rate between the middle class and the upper echelons.
     
  7. Johann

    Johann Well-Known Member

    Sorry. Wrong forum. We don't make people happy here - just the reverse, in fact. :) I think there's a rule about it in the TOS.
     
    SpoonyNix and Vonnegut like this.
  8. Rich Douglas

    Rich Douglas Well-Known Member

    There is some theoretical limit to how much you can tax marginal earnings before it disincentivizes work. But that number is likely pretty high. In the US, we've had tax brackets over 90%. But as Europe found out, push really wealthy people hard enough and they'll just go somewhere else; especially if they can earn money in ways that are not directly taxed by their home countries.

    I think we should tax some income, but we really should focus on taxing capital gains. There is no reason for that tax to be lower than the highest marginal tax bracket. I'd also like to see a greater inheritance tax (but with higher limits) so the uber-wealthy cannot maintain unearned kingdoms for their families. Also, I'd like to see that wealth pumped back into the economy where it can do some good. Let billionaires be billionaires, but let them also pony up more for the privilege, especially for inherited wealth and wealth derived merely from wealth.
     
  9. Vonnegut

    Vonnegut Active Member

    Capital gains, real estate depreciation, beneficiary trusts, shell trust funds, and I'd even argue the social security cap (although that may be a tricky one) are all absurd tax loop holes...

    Agree in principle on the inheritance tax. The estate tax exemption has risen from a ridiculous number to something approaching a reasonable level. Although I'm not sure you'd ever find a majority who agrees where that level should be. I'd be less concerned with raising the actual Federal estate tax rate, than I would with actually removing some of the countless ways around it. The only people who pay into it are those caught off guard, or didn't plan for it with a good estate planner.
     
  10. Johann

    Johann Well-Known Member

    Here in Canada, 50% of the capital gain is taxed - at the rate for the taxpayer's income bracket. (That's highest marginal rate, isn't it?) Real estate: primary residence is exempt from capital gains. (You also don't get a mortgage interest tax deduction in Canada.) Other real property - capital gains on 50% of the selling price minus the adjusted cost base (purchase price plus expenses of the purchase transaction).

    Before this (MANY years ago) there was no capital gains tax for individuals, then maybe 50 years ago there was a $100K lifetime exemption before capital gains (full 100%) were taxed. The present rules have been in effect for quite a long time.

    Does our approach strike you guys (Rich and Vonnegut) as reasonable?
     
  11. Rich Douglas

    Rich Douglas Well-Known Member

    I'm not sure I fully understand "our approach." But if you're saying that half of one's capital gains is exempt from taxation, then no. I believe capital gains should be taxed as ordinary income.

    In one severe and almost-universal example, it is: the IRA/401k (and similar tax-favored retirement plans like the 503b). Even though those plans typically contain investments, their gains are taxed as ordinary income when withdrawn. (Except Roth IRAs, which are invested into with post-tax dollars and withdrawn tax-free.) Why aren't these taxed at the capital gains rate?
     
  12. Johann

    Johann Well-Known Member

    Yes Rich. You understand correctly - 50% of the gain is exempt. And I think taxing it at 100% would be very severe. Somebody makes ONE nice capital gain, on top of his/her salary, which throws him into super-tax territory for ONE year and he loses half of it to tax? I'd say that's pretty severe for a person who gets one windfall after scuffling along for years with an ordinary income. Then again, we're funny here in Canada. We don't tax lottery winnings, either. Not even the biggest. I think that's because there's been a "Stupidity tax" paid by all lottery players - the money from years and years of buying losing tickets. :)

    I know it's no help, but retirement plans (RRSP's here) work the same way. Contributions (to a max. of 18% of employment income) are tax-sheltered when they go in, taxable as income when withdrawn. On retirement, you're allowed to minimize the tax bite by taking systematic withdrawals over up to 20 years. You can also borrow from your plan, before retirement when buying a house. I think the max is $25K for an individual, $50K for a couple who share a plan. No tax on such a withdrawal, but it must be paid back into the fund - or there WILL be tax consequences. I think the repayment term is 15 years.
     
    Last edited: Oct 16, 2020
  13. Johann

    Johann Well-Known Member

    And if you get unemployed etc. or have to make partial withdrawal(s) from your plan for any reason - tax is payable and is deducted from the withdrawal immediately, on a sliding scale. Starts at 10% for withdrawals up to $5000. The full withdrawal counts as income on your tax form. You may get a bit back (or have to pay a bit more) when you file your tax return, depending on your overall situation.

    You are not required to pay the withdrawal back into the plan, but it's best to try, subject to the normal contribution limits. Withdrawing a few thousand and not replacing it leaves a hole in the fund, which gets bigger as the pool of money grows over time. Repayment can add significantly to the value at retirement.
     
    Last edited: Oct 16, 2020
  14. Johann

    Johann Well-Known Member

    I believe you can do the same for education purposes -same deal on repayment. We also have RESPs - registered Education Savings Plans. The money is tax-paid going in and the principal is tax-free coming out when used for education. Significant bonuses are often paid into these funds, by Government and of course interest from the issuer (bank etc.)

    The beneficiary does not have to pay tax on the principal amount of contributions withdrawn but will have to include in personal income each year the amount of income that has been distributed from plan. (Not including principal). To a student with a modest income, this will be a very low bite. Possibly zero, after personal exemptions.
     
  15. Rich Douglas

    Rich Douglas Well-Known Member

    The specifics of tax policy are a bit beyond my ken. But I think we should focus more on wealth and less on earned income, and we should treat capital gains as earnings.

    My feelings are based on the visible destruction of the middle class to the benefit of the upper class.
     
  16. Johann

    Johann Well-Known Member

    Indeed. There may soon be only upper - and extreme lower. No middle. I haven't see homeless people living in local parks before this year. Last week there were two tents in the park close to me. This week, there are five. And winter's coming on. Not a good sign - for them - or anyone else.

    Not all can be blamed on the upper class. I know some of these particular people are drug addicts (tweakers - meth heads to be specific.) I used to take my guitar to the park in good weather. I don't think I will, next year; it likely won't be safe.
     
  17. Lerner

    Lerner Well-Known Member

    Indeed, homelessness is a sad and ongoing problem. Drug use is high among the homeless.
    Some are down on their luck, some are afflicted by mental diseases.
    States are trying to solve this problem.
    Some states made deals with hotels and call it room key program, that provides a room and 3 meals to homeless people who adhere to the rules.
    You also see people who are living out of their vehicles. there are designated parking areas for such people. Some share food, and kitchen at those locations.
    Some get part-time work or low paying jobs but can't rent a place.
    There are rental properties that rent a bed and there are 4 beds per room.
    Some of my children live with us and they are in the upper and mid-20s. They can't afford to live on their own.
    The oldest is in his 30s licensed JD, with a good job in a law firm, married, and have a 1-year-old, he has his own home.
    the other 2 sons and a daughter live with us, the youngest is 25. It's really expensive out there.
    Try to find something in silicon valley, with a good-paying job you maybe few months aways from homelessness.
     
  18. Rich Douglas

    Rich Douglas Well-Known Member

    I think a service/mercantile class will remain. But it, too, will be bifurcated. If you serve upwards--accountants, medical professionals, yacht salesmen--you'll do fine. But if you serve downwards--teachers, police officers, firemen, social workers--you'll struggle along with the class you service.
     
  19. Rich Douglas

    Rich Douglas Well-Known Member

    A great argument for socialism--basic income, universal healthcare, housing, utilities, education. We are an incredibly wealthy society. We have the problems you cite because we choose to have them.
     
  20. Lerner

    Lerner Well-Known Member

    I'm for a balanced approach, where the systems meet at a more balanced point.
    I think we will not be a wealthy society if we choose socialism only but we will be a wealthy society if we find a balance between capitalism, socialism, corporatism etc.
     

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