Social Security & Medicare

The point was that for middle class benefits are the least favorable: low income people get the most benefits in terms of ratio taxes_paid/benefits_received.
That's kind of a misleading ratio, for two reasons. First, income taxes are not the only taxes. If anyone ever tells you that people who make under a certain amount of income don't pay taxes, that person is either confused or lying to you. There's sales tax, payroll tax, and various governmental fees (such as automobile registration, licensing fees, etc.) that hit everyone equally, even the poor. In fact, let's say that automobile registration costs $100. That $100 is much more of a bite, percentage-wise, of a poor person's income than of a rich person's income. Factor in these other taxes and I guarantee you the taxes_paid/benefits_received ratio will even out dramatically.

The other reason is that not every dollar has the same utility. Let's take Poor Joe and Rich Sarah as an example. Joe makes $500/wk, and pays 10% in income tax. Sarah makes $5,000/wk and pays 30% income tax. Unfair to Sarah? Perhaps. But Joe has to survive on $450 a week, while Sarah has to survive on $3,500 a week. Believe me, Joe's loss of $50 hurts him a lot more than Sarah's loss of $1,500 hurts her. Dollars may be fungible in a financial model, but they are not so in the real world.
 
That's why there are many immigrants in United States from all over the world. Somehow I don't see many (if any) US citizens immigrating to other countries.

It's not advertised due to the incessant barrage of propaganda that the USA is the land of opportunity and that if you're willing to work hard and keep your nose to the grindstone then, by golly, the American dream can be yours. There are a couple of books out advising Americans on how to get out of the USA. The first, Mark Ehrman, is titled "Getting Out: You Guide to Leaving America." Another, by John Wennersten, is titled "Leaving America: The New Expatriate Generation." From a description of the book:

Today more than ever, large numbers of Americans are leaving the United States. It is estimated that by the end of the decade, some 10 million of the brightest and most talented Americans, representing an estimated $136 billion in wages, will be living and working overseas. This emigration trend contradicts the internalized myth of America as the land of affluence, opportunity, and freedom. What is behind this trend? Wennersten argues that many people these days, from college students to retirees, are uncertain or ambivalent about what it means to be an American.... The greatest irony in America today may well be that while argument and discord prevail in the edifice of American democracy about diversity, economic justice, equality, and the Iraq War, many of the most thoughtful citizens have already left the building.

Of course this is but one point of view and not necessarily the "correct" one. But I do seem to meet a fair number of long-term American expatriates who have no intention of returning to the USA.
 
That's kind of a misleading ratio, for two reasons. First, income taxes are not the only taxes. If anyone ever tells you that people who make under a certain amount of income don't pay taxes, that person is either confused or lying to you. There's sales tax, payroll tax, and various governmental fees (such as automobile registration, licensing fees, etc.) that hit everyone equally, even the poor. In fact, let's say that automobile registration costs $100. That $100 is much more of a bite, percentage-wise, of a poor person's income than of a rich person's income. Factor in these other taxes and I guarantee you the taxes_paid/benefits_received ratio will even out dramatically.

Don't confuse taxes with cost of goods and services. Fees are not taxes. The 100$ you pay is for book keeping by the govt that you are the rightful owner of the vehicle. How is it fair to charge more for more expensive car ? Didn't they already charge proportionally higher sales tax on that ?

Based on your argument, the rich should pay more for the same milk and gas which is nonsense. Those who can afford, they go to more expensive grocery shop and pay the premium and extra sales tax already. And those who cant go to Walmart or Costco for best return on their buck.

The other reason is that not every dollar has the same utility. Let's take Poor Joe and Rich Sarah as an example. Joe makes $500/wk, and pays 10% in income tax. Sarah makes $5,000/wk and pays 30% income tax. Unfair to Sarah? Perhaps. But Joe has to survive on $450 a week, while Sarah has to survive on $3,500 a week. Believe me, Joe's loss of $50 hurts him a lot more than Sarah's loss of $1,500 hurts her. Dollars may be fungible in a financial model, but they are not so in the real world.

That is totally socialist argument. The amount you make totally depends on supply and demand of your skill set. Joe is making $500/wk because he did not have higher aspiration for a better life and/or bad luck which he happily chose to live with. Sarah on the other hand makes $5000/wk because she chose to work smart, hard and explore opportunities. Should you not reward Sarah for her value add ?
 
Good piece in today's Counterpunch of the kind of society the USA is and has been:

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Even in the New Deal's halcyon days, Democratic programs fell far short of working-class demands or welfare policies in other advanced capitalist countries. As historian Kevin Boyle noted, "In 1949, after four full terms of Democratic Party rule, the United States ranked last among industrial capitalist states in social welfare expenditures."
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[FONT=Verdana, Arial, Helvetica, sans-serif][SIZE=-1]And another good piece by Paul Craig Roberts, which illustrates my contention that taxpayer money gets funneled into uses that don't benefit most middle-class taxpayers:[/SIZE][/FONT]


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The same Congress that can't find a dime for homeowners or health care appropriates hundreds of billions of dollars for the military/security complex. The week after the Senate foreclosed on American homeowners, the Obama "change" administration asked Congress for an additional $61 billion dollars for the neoconservatives' war in Iraq and $65 billion more for the neoconservatives' war in Afghanistan. Congress greeted this request with a rousing "Yes we can!"[/SIZE][/FONT]
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[FONT=Verdana, Arial, Helvetica, sans-serif][SIZE=-1]The additional $126 billion comes on top of the $533.7 billion "defense" budget for this year. The $660 billion--probably a low-ball number--is ten times the military spending of China, the second most powerful country in the world.
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As to corruption and other issues, they exist everywhere. And in most countries those issues are at much higher levels than in the US.
The corruption in this country is more polished and concentrated at higher levels. This is probably because most of the population is educated, immigrant and more mobile. Though the corruption here is severe, average Joe doesn't complain until it affects him thus, making it appear less corrupt.

Corruption in other countries is more visible at the grass roots level because socialist govts in an effort to keep costs low for the poor, offer fewer services and lower wages and as a result the rich rig the system to their advantage through bribery.
 
But I do seem to meet a fair number of long-term American expatriates who have no intention of returning to the USA.
It is no surprise that those expatriates you met are American or US citizens. For permanent residents or green card holders, they would lose their status once they hold a job oversea for an extended period of time. So even if they want to, most would just grind on until they become USC.
Say, how are the benefits at other advanced country for retired people? I may join those so called expatriates if the numbers work out :)
 
Another, by John Wennersten, is titled "Leaving America: The New Expatriate Generation."

Some people like to travel for extended periods of time, live in other countries to learn the culture. Mr. Wnnersten traveled a lot. Now he is happily resides in Maryland. Other like to stay in another country permanently because they relate themselves to the culture.

However, those are usually well established, educated professionals with stable personal financial situation. Now lets take fresh graduates from Universities. How many of American graduates choose to go study abroad and build career there? And I'm not talking about a one year fun study-trip to European university. I'm talking about someone who has views to settle down in the country of destination.

Now consider how many people come to the US every year from best schools in China, India, Russia... They are paying huge (by their countries living standards) tuition fees and definitely aiming to build their careers here in US.

Once they succeed and have enough to feel financially secure for extended periods of time without need to work full time, they can do soul searching exercises, explore other countries and cultures. But this is completely different story.
 
TLet's take Poor Joe and Rich Sarah as an example. Joe makes $500/wk, and pays 10% in income tax. Sarah makes $5,000/wk and pays 30% income tax. Unfair to Sarah? Perhaps. But Joe has to survive on $450 a week, while Sarah has to survive on $3,500 a week. Believe me, Joe's loss of $50 hurts him a lot more than Sarah's loss of $1,500 hurts her. Dollars may be fungible in a financial model, but they are not so in the real world.

Sarah: Works for the big bank. 12 hours per day. Sometimes 6 days per week. Has a one child who she barely can spend time with.

Joe: Part time school bus driver. Makes $20/hour. Which makes him work 25 hours per week (two Sarah's full work days. Has 4 kids. Spends 5 days per week with them enjoying nice weather in central par. Let's add to the package: food stems, medicaid and section 8 apartment.


Looks like Sarah is in a wrong business.

I personally don't want to take Joe's place. I prefer to be at Sarah's position. But I also don't want someone to tell me how Joe is poor and that we have to give him a little bit more benefits (by increasing my taxes), because last $20 metrocard increase hit him so much.
 
Sarah: Works for the big bank. 12 hours per day. Sometimes 6 days per week. Has a one child who she barely can spend time with.

Joe: Part time school bus driver. Makes $20/hour. Which makes him work 25 hours per week (two Sarah's full work days. Has 4 kids. Spends 5 days per week with them enjoying nice weather in central par. Let's add to the package: food stems, medicaid and section 8 apartment.


Looks like Sarah is in a wrong business.

I personally don't want to take Joe's place. I prefer to be at Sarah's position. But I also don't want someone to tell me how Joe is poor and that we have to give him a little bit more benefits (by increasing my taxes), because last $20 metrocard increase hit him so much.

Govt has no role in dictating how Sarah and Joe should live beyond "recommending" a balanced lifestyle and enforcing existing social welfare laws. Sarah and Joe in this instance "chose" those particular life styles and they are happy with it. If Sarah's priority is to take care of her child, she has to cut back on work and strike a balance.
 
Soak the Rich, Lose the Rich

Soak the Rich, Lose the Rich
Americans know how to use the moving van to escape high taxes.

By ARTHUR LAFFER and STEPHEN MOORE


With states facing nearly $100 billion in combined budget deficits this year, we're seeing more governors than ever proposing the Barack Obama solution to balancing the budget: Soak the rich. Lawmakers in California, Connecticut, Delaware, Illinois, Minnesota, New Jersey, New York and Oregon want to raise income tax rates on the top 1% or 2% or 5% of their citizens. New Illinois Gov. Patrick Quinn wants a 50% increase in the income tax rate on the wealthy because this is the "fair" way to close his state's gaping deficit.

Mr. Quinn and other tax-raising governors have been emboldened by recent studies by left-wing groups like the Center for Budget and Policy Priorities that suggest that "tax increases, particularly tax increases on higher-income families, may be the best available option." A recent letter to New York Gov. David Paterson signed by 100 economists advises the Empire State to "raise tax rates for high income families right away."

Here's the problem for states that want to pry more money out of the wallets of rich people. It never works because people, investment capital and businesses are mobile: They can leave tax-unfriendly states and move to tax-friendly states.

And the evidence that we discovered in our new study for the American Legislative Exchange Council, "Rich States, Poor States," published in March, shows that Americans are more sensitive to high taxes than ever before. The tax differential between low-tax and high-tax states is widening, meaning that a relocation from high-tax California or Ohio, to no-income tax Texas or Tennessee, is all the more financially profitable both in terms of lower tax bills and more job opportunities.

Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.

Did the greater prosperity in low-tax states happen by chance? Is it coincidence that the two highest tax-rate states in the nation, California and New York, have the biggest fiscal holes to repair? No. Dozens of academic studies -- old and new -- have found clear and irrefutable statistical evidence that high state and local taxes repel jobs and businesses.

Martin Feldstein, Harvard economist and former president of the National Bureau of Economic Research, co-authored a famous study in 1998 called "Can State Taxes Redistribute Income?" This should be required reading for today's state legislators. It concludes: "Since individuals can avoid unfavorable taxes by migrating to jurisdictions that offer more favorable tax conditions, a relatively unfavorable tax will cause gross wages to adjust. . . . A more progressive tax thus induces firms to hire fewer high skilled employees and to hire more low skilled employees."

More recently, Barry W. Poulson of the University of Colorado last year examined many factors that explain why some states grew richer than others from 1964 to 2004 and found "a significant negative impact of higher marginal tax rates on state economic growth." In other words, soaking the rich doesn't work. To the contrary, middle-class workers end up taking the hit.

Finally, there is the issue of whether high-income people move away from states that have high income-tax rates. Examining IRS tax return data by state, E.J. McMahon, a fiscal expert at the Manhattan Institute, measured the impact of large income-tax rate increases on the rich ($200,000 income or more) in Connecticut, which raised its tax rate in 2003 to 5% from 4.5%; in New Jersey, which raised its rate in 2004 to 8.97% from 6.35%; and in New York, which raised its tax rate in 2003 to 7.7% from 6.85%. Over the period 2002-2005, in each of these states the "soak the rich" tax hike was followed by a significant reduction in the number of rich people paying taxes in these states relative to the national average. Amazingly, these three states ranked 46th, 49th and 50th among all states in the percentage increase in wealthy tax filers in the years after they tried to soak the rich.

This result was all the more remarkable given that these were years when the stock market boomed and Wall Street gains were in the trillions of dollars. Examining data from a 2008 Princeton study on the New Jersey tax hike on the wealthy, we found that there were 4,000 missing half-millionaires in New Jersey after that tax took effect. New Jersey now has one of the largest budget deficits in the nation.

We believe there are three unintended consequences from states raising tax rates on the rich. First, some rich residents sell their homes and leave the state; second, those who stay in the state report less taxable income on their tax returns; and third, some rich people choose not to locate in a high-tax state. Since many rich people also tend to be successful business owners, jobs leave with them or they never arrive in the first place. This is why high income-tax states have such a tough time creating net new jobs for low-income residents and college graduates.

Those who disapprove of tax competition complain that lower state taxes only create a zero-sum competition where states "race to the bottom" and cut services to the poor as taxes fall to zero. They say that tax cutting inevitably means lower quality schools and police protection as lower tax rates mean starvation of public services.

They're wrong, and New Hampshire is our favorite illustration. The Live Free or Die State has no income or sales tax, yet it has high-quality schools and excellent public services. Students in New Hampshire public schools achieve the fourth-highest test scores in the nation -- even though the state spends about $1,000 a year less per resident on state and local government than the average state and, incredibly, $5,000 less per person than New York. And on the other side of the ledger, California in 2007 had the highest-paid classroom teachers in the nation, and yet the Golden State had the second-lowest test scores.

Or consider the fiasco of New Jersey. In the early 1960s, the state had no state income tax and no state sales tax. It was a rapidly growing state attracting people from everywhere and running budget surpluses. Today its income and sales taxes are among the highest in the nation yet it suffers from perpetual deficits and its schools rank among the worst in the nation -- much worse than those in New Hampshire. Most of the massive infusion of tax dollars over the past 40 years has simply enriched the public-employee unions in the Garden State. People are fleeing the state in droves.

One last point: States aren't simply competing with each other. As Texas Gov. Rick Perry recently told us, "Our state is competing with Germany, France, Japan and China for business. We'd better have a pro-growth tax system or those American jobs will be out-sourced." Gov. Perry and Texas have the jobs and prosperity model exactly right. Texas created more new jobs in 2008 than all other 49 states combined. And Texas is the only state other than Georgia and North Dakota that is cutting taxes this year.

The Texas economic model makes a whole lot more sense than the New Jersey model, and we hope the politicians in California, Delaware, Illinois, Minnesota and New York realize this before it's too late.
 
A point about no income-tax states: my sister who is an RN after working in NYC for a few years, moved to Houston where she told me her salary is 2/3 of what it was in NYC. I guess it's the offsetting factor at work.
Sure, the cost of living is cheaper in no-income-tax states than the rest but I'm not entirely convinced that at the end of the year, you build more equity than your counterparts elsewhere.
And who is to say that Texas, Florida WILL NEVER tax income 5 years down the road.
 
A point about no income-tax states: my sister who is an RN after working in NYC for a few years, moved to Houston where she told me her salary is 2/3 of what it was in NYC. I guess it's the offsetting factor at work.
Sure, the cost of living is cheaper in no-income-tax states than the rest but I'm not entirely convinced that at the end of the year, you build more equity than your counterparts elsewhere.
And who is to say that Texas, Florida WILL NEVER tax income 5 years down the road.

If you are rich, it makes sense to relocate to a low-tax area. This the rich are happy to do. In fact some have eve given up the increasingly dubious privilege of being an American citizen so as not to pay any US tax. I'm not sure the argument applies to someone living on a salary. As you point out, one offsetting factor is lower wages. And yet ... why should I be taxed higher in a place like NYC simply to fund a deficit that isn't my fault?
 
You know which state has really low taxes? Delaware. This must be why the average cost of a one-bedroom apartment in Delaware is over $1,000,000, and why Delaware is always mentioned as the economic powerhouse of the USA. New York City, on the other hand, has such incredibly high taxes that there are practically no rich people living here any more.
 
The question is why states like Texas, Hampshire, etc with zero income tax can have reasonable budgets, while TV is announcing 50 billion dollars budget deficit for New York State?

Is NY's "maintenance" much higher than in other states?
 
Yes, we have huge issues with social security and medicare -- deficits in general.
To overcome the problem we in the USA have to use the following tools in varying degrees
1. Raise Taxes
2. Depreciate the currency(aka: higher inflation)
3. Reduce benefits

To make the process less painful, the ideal situation would be a combination of all the three.
However, steps 1 and 3 are extremely politically contentious and will not be easy to push through.
Depreciating the currency(inflation) is more easier: as of now the Fed can do it without any explicit laws..
This article portends it. http://www.bloomberg.com/apps/news?pid=20601109&sid=auyuQlA1lRV8&refer=home

Regarding Andy's point and other posts which compared about the relatively richer paying(as taxes or in other ways) for the not so rich --I agree its not exactly fair. But that is also reality -- no country or system can be purely capitalistic or socialistic. Its not fair for the well off to be burdened with taxes -- but at the same time, some amount of welfare is a political necessity for stability. So, to some extent taxation is a cost that we pay for stability. Its undesirable but unavoidable.
 
James Mirrlees got a Nobel prize for finding out that it is the best to not tax the most productive people at all. This is hardly possible so he said that the maximum income tax rate should be around 20%. One of the findings is that if you increase tax rates, the total amount of income tax decreases and does not increase. The reasons have already been outlined here (people move away or work less etc.)

This is a proven theory so why don't our beloved politicians simply follow this? The reason is so simple: they want to be voted. And 90% of the voters are people with little money who think its only fair that the highest incomes have to pay a lot of taxes.
 
One of the findings is that if you increase tax rates, the total amount of income tax decreases and does not increase. The reasons have already been outlined here (people move away or work less etc.)

I don't know of anyone who has chosen to leave the NYC area (or the United States) because of high taxes. Sweden has some of the highest taxes of any nation on earth, and its citizens rank among the happiest people in the world. People love to complain about taxes, but if people actually moved (as Laffer, Moore, and Mirrlees seem to think) to avoid taxes, NYC would be a ghost town and North Dakota would be teeming with rich people.

And who works less because of higher marginal tax rates? That argument has never made any sense to me. What kind of person turns down a $100k raise just because it would increase their marginal tax rate? "I only get to keep $65k of this? Forget it! I'd rather have nothing!"
 
Western NY billionaire—and three time NY gubernatorial candidate—Tom Golisano has had it with New York's taxes so he's changing his legal address to Florida. The Buffalo News reports: "Golisano told a gathering of Rochester business executives that he will remain as owner of the Buffalo hockey team, but he is fleeing the Empire State to avoid paying $13,000 a day in state income taxes".

Golisano, who is working with another billionaire, Mayor Michael Bloomberg, on possibly revamping the Independence Party, says he'll use the money he's saving (over one year, that would be about $4.75 million) to finance charities.



Here is another article: Trump Speaks Out On Proposed Millionaires Tax
Trump went on to tout the benefits of Florida and its governor, Charlie Crist. While Trump isn't threatening to leave New York he says that it doesn't make sense for people to have to pay millions in taxes especially if they make the money elsewhere. Trump claims to have spoken to "literally 25 to 30 people" that are considering leaving New York.



Of course we are not talking here about people making $100K to leave New York because of taxes. But they might be next in line when things get worse.
 
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