Tax Day Marathon! (4/18/2017)

e tax the rich some more that recommendation comes from many politicians it seems obvious to tax a rich we tell ourselves they won't miss that little extra bit we take and after all it's only right that they pay their fair share the technical name for taxing the richmore is progressivity and it's hard to oppose a concept that shares its roots with an optimistic word like progress but this surface logic obscures some important truths about progressivity so let's stand back the first thing we see when we take our distance is surprising it is that many people don't know what progressivity is supposing you pay $5 in tax on your income a rich man pays $10 because he makes twice as much as you this Arrangement sounds like progress right but that is not a progressive tax Schedule it is a proportional one a true fair share what was once known as the tithe but is now commonly called a flat tax under a flat tax everyone pays the same rate no matter what they earn in the 1980s a poll by political scientist Carlin Keane suggested that Americans thought flat proportional taxes were Fair taxes and as we know from architecture and art humans are wired to like proportion ality a progressive tax structure by contrast is actually disproportionate progressivity resembles a flight of stairs each individual starts out at the bottom paying the same rate say 10% when his income Rises to a certain line the taxpayer moves up the step on the staircase and his rate goes up to say 20% but only for the share of income past that line and the next step the rate goes up again say to 30% but again only for the last stare of income and so on but the prospect of going up all those stairs tires the climber surveying the rates at the top workers stop chasing a promotion they once thought they wanted why bother the taxman will take the money anyhow when workers or professionals stall on the stairs the government loses money but so do regular people for when the person who decides not to earn more money is a business owner the result of that decision is a smaller company and fewer jobs for others a of course some people do keep climbing no matter what some people are wired that way and those taxpayers can get to the point where they pay half of what they earn especially in high tax states which leads to the greatest argument against the progressivity staircase progressivity is unjust people have a right to what they earn even Californians and New Yorkers but politicians like being able to say that they are insurance that the rich pay their share and nothing proves their anti-r credentials like sponsoring fresh legislation for more progressivity so for years president after president Democrat and Republican and Congress after Congress have passed law after law to make the income tax more Progressive president Richard Nixon signed a law that took 9 million taxpayers at the bottom end off the income tax staircase entirely other presidents like Ronald Reagan and Bill Clinton took took a few more million out George W bush removed even more so today nearly half of Americans pay no income tax at all and 10% of earners pay 70% of all income tax talk about disproportionate here we get to a genuine question of fairness there's something wrong with our democracy when people who pay no tax can vote for tax increases on fellow citizens who already do pay tax but reversing a Century of progressivity won't be easy for when you cut taxes for all in a progressive rate structure the rich necessarily get a larger tax break that is so because they pay a greater share to begin with and advocating larger breaks for the rich is not a popular political move to put it mildly many economists make the case for a true flat tax others to to sales tax consumers would then pay taxes only on what they buy either way it's time for politicians to give up their small talk about the earned income credit the child credit and so on and get out their saws to dismantle the big staircase our disproportionate progressive income tax the country could then try a tax code that's simple and easy to navigate like a new road that runs Straight Ahead into the Horizon many of us would call that progress I'm AMD schayes for Prager University let's discuss an important concept from economics the laugher curve this concept is named after the man who developed it Arthur laugher a major American Economist who was taught at the University Chicago University of Southern California and elsewhere the laugher curve illustrates the two most important things we need to know about taxes how much money the government can raise from taxes and at what level of Taxation the government might start getting less not more Revenue the laugher curve is Illustrated here by a two-dimensional graph the horizontal line is the tax rate that the government chooses and the vertical line is the revenue that the government receives from that tax rate first because 0 times any number is zero if the tax rate is zero then the government receives zero Revenue accordingly 0 0 is our first point on the curve now suppose the government chooses a very small tax rate say 1% the government will then begin to receive some revenue from citizens this means that another point in the curve must be something like this now suppose the government charges a 2% tax rate then everyone would agree that it will receive even more Revenue which means that another point in the curve must be something like this and if the government keeps raising the rate then Revenue will continue to go up at least when we're in the low tax rate part of the graph this means that if we fill in the curve it has an upward slope at least when we're in the low tax rate part of the graph now suppose the government charges a 100% tax rate if this happens then no one would work that is why would anyone work when the government is going to take all the money that they make and if no one works the national income would be zero this means that government revenue would be 100% of zero or zero this means that another point of the curve must be here now let's complete the curve when we do we see that the curve must must have a hump that is it could look like this or this or this but it has to have a hump this is simply because the revenue line has to go up in the low tax rate part of the graph and has to start going down to reach the point we drew at the 100% tax rate but if the curve slopes downward it implies something remarkable something that few of those who push for higher and higher taxes want to admit it means that when tax rates are high if you make them higher you'll actually bring in less Revenue to the government this has in fact occurred in practice for instance during the Great Depression when Congress passed the Holly Smoot Tariff Bill although the bill raised taxes on imported goods the revenue that came from those taxes actually decreased a more recent example occurred in the early 1980s after President Reagan and Congress drastically reduced the tax rates on the rich the tax revenue that came from the Rich actually increased all economists even the most left-wing ones agree that the true laugher curve the one that reflects real life has a hump that therefore the curve has a downward sloping part meaning at some point tax revenues start going down when you increase rates so where then do economists disagree they disagree about exactly where the hump occurs when I took my first economics class in 1984 at stanf for University the textbook said that the hump occurs somewhere around the 70% tax rate but apparently I was taught something wrong new evidence from an unexpected Source suggests that the hump occurs at a much lower tax rate something around 33% that source is a study by Christina RoR and her husband David RoR both are economics professors at the University of California Berkeley Christina RoR was the chairman of President Barack Obama's Council of economic advisors in other words the study was written by one of the most influential liberal economists in the United States and it was published in the American Economic Review the most widely respected economics journal in the world the study examined how national income responds to tax rates but as far as what concerns us here the key point is that if you do the math the results imply that the hump on the laugher curve occurs where the tax rate is around 33% much lower than economists previously thought let's now put these findings into Political terms they suggest that no matter what your politics you should not want tax rates to be above 33% obviously conservatives and many moderates think rates should be lower than that but even if you are an extreme left Winger and your only goal is to make government as big as possible you should still oppose a tax rate higher than 33% the reason is that as the RoR and RoR study suggests when tax rates go higher than that the government actually gets less money everyone of every political persuasion should pay attention to the RoR and RoR study and its important implications they suggest that if we decrease tax rates government revenues might actually rise I'm Tim Gros professor of political science and economics at UCLA for Prager University the American Revolution started as a tax revolt over a single tax on te now look at us it seems like everything we do is tax the system Behind these taxes is a bureaucratic monstrosity a dead weight on the economy and it erodes our trust in the government that's taxing us if you have enough lawyers lobbyist and loopholes at your disposal maybe you can gain the system that's fine for big corporations and Wealthy individuals but what about the small business owner or the middle class taxpayer he just has to shut up and pay up nothing illustrates the disaster that our tax system has become than the mother Vault taxes the federal income tax code this tax alone with all its attendant rulings and interpretations is estimated to be about 10 million words and Rising several years ago Money Magazine took a hypothetical family's finances and gave the numbers to 46 tax preparers 46 different estimates came back and in some cases those differences ran into the thousands of dollars of what the family owed this from experts who are considered to be the best in the business but the taxes themselves are only part of the cost of this toxic code there's also the cost of compliance the time money and effort it takes Americans to prepare their taxes a George Mason University study puts the annual cost of compliance as high as $378 billion and the total annual economic cost including work hours at more than $600 billion again these are annual costs as in every year that's a lot of money that could be used in more productive ways creating new products new Services new medical devices new cures for diseases clearly the time has come to drive a stake through the heart of this tax monster so what should be done like most things the best solution is the most simple a simp single flat tax with no deductions except for a deduction for each adult and for each child fill out a sheet of paper or key in a few numbers on your computer and you're done this one change would not only make every Citizen's life easier would also transform government our economy and our society by ending the complexity that gives bureaucrats and politicians so much power they have power because they're the ones who Dole out the tax favors it wasn't always this way there was a time when corporations primarily lobbied Washington to keep government out of their businesses that has changed in the words of the Atlantic the evolution of business lobbying from a sparse reactive Force into a ubiquitous and increasingly proactive one is among the most important transformations in American politics over the last 40 years this favor seeking is centered on getting special treatment and tax breaks a flat tax will help us begin to scale back that special interest loving crony capitalist big government that we all complain about everyone would pay less not only in taxes but also in compliance investment and job creation would Skyrocket we'd experience a recovery that would grow the tax base and irony of ironies ultimately generate more revenue for government I go into this in much greater detail in my book Reviving America but here in essence is how it works everyone individuals and corporations pays a 177% flat rate this single rate is absolutely critical whenever we have two or more tax rates they're like rabbits they breed we saw that with the 1986 tax reforms which consisted of two rates they've since multiplied into the seven we have today well you might argue this sounds great for the rich and even the middle class but what about the poor 177% is a big burden that's why under this plan a family of four who makes less than $52,800 would pay no income tax that's double the current federal poverty level this will let people at low income levels keep more of their money and for those who think the rich should pay more they will prior to the passage of the tax cuts that President Ronald Reagan pushed through Congress in 1981 the top 1% of American earners accounted for nearly 18% of Federal personal income tax revenue by 1988 that same group accounted for nearly 28% an increase of 10 percentage points in only seven years by eliminating loopholes and requiring everyone to pay their fair share the flat tax offers a model of tax fairness more than 40 countries and jurisdictions have enacted the flat tax when all the facts are considered the real question is not whether America should implement this vital reform but what are we waiting for it's time for another tax Revolution I'm Steve Forbes for Prager University hi I'm Marissa Str CEO of prageru did you know that prageru is a nonprofit every dollar you give will go towards making more videos and marketing them so please consider making a donation today here's a question you're likely to hear whenever the subject of taxes comes up do the rich pay their fair share there are two parts of this question who is Rich and what is fair let's start with who is Rich nearly everyone assumes that a person who is among the top 10% of all income earners qualifies as rich but according to 2011 data a top 10% household makes around $150,000 or above in gross annual income that's income before deductions and taxes now 150,000 is a nice living but it certainly doesn't make you rich okay then what about the top 5% you get into this percentile if your household makes around $190,000 or above that's a nice bump but it hardly puts you in the rich category how about the top 1% that's 500,000 or above a great income but remember most people only get to that level after many years of hard work and quite possibly the accumulation of serious debt to fund their education or build their business of course there are people who make more than 500,000 and there are some who make many millions even billions but the number who do is very small now let's talk about fair fair would seem to be that the group of taxpayers who earn 10% of the country's income would pay 10% of the country's taxes the group who earned 20% would pay 20% of the taxes and so on but what if I told you that according to IRS data the top 10% of all earners the people making $150,000 and above pay 71% of all federal income tax while earning only 43% of all income if anything the top 10% pay more than their fair share so as it happens do the much revived top 1% they earn 177% of all income but pay 37% % of all federal income taxes and what about those at the other end of the income scale the lower earners are we squeezing them hardly those who make 45,000 or less 47% of all earners pay little and often no income taxes ah but what about payroll taxes the money we pay to fund Social Security and Medicare that takes a bigger bite of the paycheck of lower earners than higher earners isn't that unfair consider two points first it's misleading to call the payroll tax a tax it's really an insurance payment that guarantees we receive Social Security and Medicare after we turn 65 second the benefits we receive from Social Security are capped no matter how much we have paid in this means that the payroll taxes of high earners actually help subsidize the Social Security and Medicare benefits that low earners receive at retirement how do all these numbers stack up against other countries the US income tax system is substantially more Progressive meaning that income tax rates rise as income Rises than other Advanced countries including Germany and Sweden so if you think that our tax system is unfair because it coddles high earners then you must conclude the tax systems and these other countries are even more unfair so how high are tax rates on Americans today well throw in federal tax increases mandated in 2013 and state taxes and top earners face a tax rate of more than 50% in California and New York other states like Maryland and Connecticut are not far behind do you think a tax rate of greater than 50% is fair if so is there any rate that wouldn't be nobody's calling for bake sales for anyone in the top 10% of earners and no one wants to minimize the struggles of those at the lower income strata but to say the rich however you might Define them don't pay their fair share is simply wrong finally numerous academic studies including ones that I have done show that when tax rates are too high investment risk-taking by entrepreneurs and therefore job creation all Decline and when that happens it's the poor who suffer not the rich the rich do fine it may feel good to take even more money from the top 10% but it doesn't do good and it sure isn't fair I'm Lee ohanyan professor of Economics at UCLA for Prager University once upon a time there were three brothers triplets named Tom Dick and Harry class they were raised in the same home with the same parents had the same IQ same skills and same opportunities each was married and had two children they were all Carpenters making $25 per hour while they were very similar in all these respects they had different priorities for example Tom chose to work 20 hours per week while his brother dick worked 40 hours and Harry 60 it should also be noted that Harry's wife worked full-time as an office manager for a salary of $50,000 Dick's wife sold real estate part-time 10 hours a week and made $25,000 per year Tom's wife did not work Tom and Dick spent all of their family income since they paid into Social Security they figured they didn't need to save for retirement Harry and his wife on the other hand had over many years put away money each month and invested it in stock and bonds here's how it worked out Tom made $25,000 a year dick and his wife made $75,000 and Harry and his wife $150,000 when a new Housing Development opened up in their Community the brothers decided to buy equally prized homes on the same private Street one day the brothers decided to pull their funds for the purpose of improving their street concerned about crime and safety and wanting a more attractive setting for their homes The Three Families decided to install a security gate at the Street's entrance repaved the streets surface and enhance the lighting and Landscaping the work was done for a total cost of $30,000 Harry assumed they would divide the bill three ways each brother paying $10,000 but Tom and Dick objected why should we pay the same as you they said you make much more money than we do Harry was puzzled what does that have to do with anything he asked my family makes more money because my wife and I work long hours and because we have saved some of the money we've earned to make additional money from Investments why should we be penalized for that Harry you can work and save all you like Tom countered but my wife and I want to enjoy ourselves now not 25 years from now fine Tom do what you want it's a free country but why should I have to pay for that I can't believe you're being so unbrotherly Tom argued you have a lot of money and I don't I thought you'd be more generous at this point dick The Peacemaker in the family entered the conversation I've got an idea dick said our combined income is $250,000 and $30,000 is 12% of that amount why don't we each pay that percentage of our income under that formula Tom would pay 3,000 I would pay 9,000 and Harry would pay 18,000 I have a much idea said Tom and one that's fairer than what you're proposing Dick and Harry turned to Tom Harry should pay $ 23,450 dick you should pay $6,550 and I will pay nothing to dick this sounded completely arbitrary and not really fair but it did have one big plus his share would be $2,450 less under Tom's formula than under his own so he decided to be silent Harry however was stunned you want me to pay almost 80% of the bill despite the fact that each of us is receiving the exact same benefits where did you get such a crazy idea from no less than Authority than the US government Tom responded as he pulled out a gray booklet it's all right here in the IRS tax tables this is the progressive income tax system all us taxpayers live under and I don't see why we should be any different in fact I believe all future improvements should be paid in this way works for me said dick so by a vote of 2 to one the cost of the street improvements was divided as Tom had proposed even though they benefited equally and even though the reason Harry had more money was that he and his wife had worked many more hours than his brothers and their wives and had saved some of what they had earned instead of spending it all Tom and Dick lived happily ever after with their new arrangement Harry grumbled a lot but whenever he complained his brothers called him greedy and selfish the [Music] end hi I'm Elicia Krauss director of Outreach here at prageru to have this video reach more people please consider a donation 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