Monday, December 3, 2012

Tax increase - Discussion Topic 2012/12/3
Do you think tax rates is low in US? Will tax increase be a good way to fix fiscal cliff?


  1. Tim Shoji
    Tax rates are in fact lower in the U.S. compared to many developed nations, and that's a GOOD THING. Of all the things we should emulate from other countries, higher tax rates probably shouldn't be on top of the list. Though the evidence is inconclusive, I think one can make the argument that the GDP per capita is much higher in the U.S. compared to many other countries in Western Europe because we have lower tax rates:

    GDP Per Capita (Wikipedia)
    U.S. ~$48K
    Germany ~39K
    France ~35K
    Italy ~33K
    Spain ~32K

    The article above actually links to another NYT article, and if you watch the video that corresponds with the article, it's very clear that almost every single person believes someone else should pay more taxes. In a democracy like ours, that someone else usually means rich people. Perhaps rich people should pay more, perhaps not. I don't have the right answer. But in this context, I think it's useful to look at who already pays what share of the federal income tax in the U.S:

    % of Federal Personal Income Taxes paid in 2009, grouped by income percentiles (National Taxpayers Union, based on data from IRS)
    Top 1% 36.73
    Top 5% 58.66
    Top 10% 70.47
    Top 25% 87.30
    Top 50% 97.75
    Bottom 50% 2.25

    I'd be interested in exploring how the distribution looks in other countries, like the Western European ones I listed above. At any rate as you can see, the top 25% of income earners already pay about 87% of all federal income taxes in the U.S. I personally think that's already a lot, and it would be tough to ask rich people to pay more...although we may have no other choice than to ask them to foot the bill.

    The fiscal cliff is actually a dramatic tax increase on EVERYONE. A tax increase would make the fiscal cliff worse.

  2. Glenn Alpert
    Tax rates may be lower compared to 1980s, but the cost of living has risen, and so has inflation. People also subscribe to more services that they didn't have before, such as cell phones, internet, cable TV, and all other types of amenities. As we get closer to the fiscal cliff, I think that the government has to be very careful about how they go about how they change any taxation policies, because it could have a domino effect on everyone. In an ideal world, no publicly funded programs will be cut, but inevitably, they will have to be if we are to do anything about our deficit.

  3. Zhishuo Zhang
    I think that's the link mentioned by Tim, absolute great slides!
    There is an interesting saying in the slides that top 25% income earners generate 66% of the total income and pay 87% of taxes. When it put this way, it seems that top earners have alreay pay very high taxes. With that being said, I think maybe there are other ways to raise government revenues besides taxes, for example charge service fee for high way and so forth.

    Also I am wondering why we only discuss personal tax, corperation tax, what about consumption tax that charge for basically every item we purchase. It can be a very big part in tax revenue. What if the government increase that a little? Combine with other fees that government charge for public service, it may make up a large amount of the deficit.

  4. Kalyan Kanakamedala
    While the article discusses the results of government spending such as the budget deficit as well as money flowing to programs such as Medicaid, Medicare, Social Security, etc., I believe another important point is the multiplier effect that government spending has on the economy. Tim can speak to this a lot better, but every dollar that the government spends generates a certain amount in added value to the economy which is known as the fiscal multiplier. Increasing taxes may have a dampening effect on consumption and business activity as we have described, but lowering spending may also have a dampening effect, and it remains to be seen which will be more harmful in this precarious state of the economy.

  5. Xiao Zhong
    Though raising tax can definitely become a solution for easing the deficit problem, it is neither a good way nor a long-term way out. Raising taxes would cause a series of negative effects on the economy at this critical time—decreasing consumer spending, slowing business investment, hampering economic recovery, etc. Also, simply raising taxes without fundamental restructuring of government spending may be pointless. At least, I think every nation has some ineffective or duplicate spending to be cut and government efficiency to be improved. As indicated in the article, a possible way may be some efforts from both sides—raise tax a little bit while focus more on spending cut for duplicate government programs. However, I am interested in and also confused about how to strike a balance between the two, i.e. to raise tax for which group and to cut spending in which specific aspect?

    In the past few weeks after the election, there has been little evident progress in negotiations between the White House and the Republicans—again indicating that there is no simple solution to the problem. Hope we can get an answer by the year end, otherwise the economy may face a new challenge and even recession.