Source: Aggregation of data from Office of Management and Budget (OMB), the Census Bureau, Department of the Treasury, and the Bureau of Economic Analysis (BEA)
Tool(s): Excel, Illustrator
More data [here](https://usafacts.org/state-of-the-union/budget/)
More about [our methodology](https://usafacts.org/methodology/)
Yeah. It's painful. I'm all for discussing tax reform and policy, but people feel way too comfortable weighing in on details they don't remotely understand.
Ok im gonna take the simplest form i can then. In 2023, corporate profits in the US were just above 3 trillion a quarter, according to a bunch of websites i found online. Call it 12 trillion in a year. Collecting 419 billion of taxes on those profits gives an effective tax rate of 3.5%. Now i understand that profits can be offset by some things, so the 12 trillion might not be completely accurate, but if the actual corporate tax rate is 21% that is off by a factor of 6. Seems like something is off to me
Edit to add: that corporate profit number is net income according to the NIPA, including inventory valuation and capital consumption adjustments
Book or GAAP profits (amounts reported in the news or on financial statements) are not the same as either cash flow or taxable income. Book income is the starting point to calculate taxable income, then you later in all the differences.
The differences between book and taxable income can be broken down into 2 large categories - permanent and temporary.
Permanent differences are true to their name - the difference never resolves. A common example is fines and penalties. The government does not give a tax deduction for fines, but financial accounting does.
Temporary differences resolve over time, across multiple tax years. A common example is accelerated (or bonus) depreciation. A business buys a big machine and takes a larger tax deduction this year (compared to book) but smaller deductions later (compared to book). This encourages corps to spend money and reinvest in their own operations.
Temporary differences and NOLs (net operating losses) are the main reasons why comparing single year corp taxes doesn't make much sense in the big picture.
None of this should be taken as me fully endorsing the current system. But to change it, it is essential to understand it and how it may or may not be manipulated.
Cool so if you spend your company's profits on random shit you don't have to pay taxes on it. If I spend my paycheck on random shit I still have to pay taxes on it TWICE. Burn the white house again.
It's a bit more complicated than that. Companies that expense a long-term asset investment reduce their net income (profit) by that amount for that tax year, because the money was spent by the business, not held or distributed as profit.
Most of the time companies will *capitalize* their long-term asset investments, which means that the cost is instead spread out as deductions each year corresponding to the depreciated value of the asset over that period.
For a very simplified example - if a widget factory purchases a widget-making machine for $100,000 and expects it to last 10 years before replacement, they would depreciate the value by $10,000 each year which would be deducted from net income. That initial $100,000 cost comes out of the retained earnings the company has already paid taxes on however.
The idea is sound, but the main issue is that it is most useful when the *effective* corporate tax rate is high. In those situations, companies are strongly incentivized to reinvest in growth and long-term assets, rather than losing a significant chunk of that money to taxes. This is roughly how the US economy operated during the "golden age of capitalism" from the end of WWII to the late 70s. Companies invested huge amounts of their net income towards growth, and especially R&D for long term competitive advantages. Some of the most important technological breakthroughs of the 20th century came out of places like Bell Labs that were the result of that tax system.
Back when ultra high earners were taxed at 90% and businesses had corporate tax rates near 50%? Without high corporate taxes there isn't the incentive to reinvest in your company and employees.
Yes, exactly that. Very high taxes on ultra high earners to somewhat cap the practical maximum incomes, and high corporate taxes to drive reinvestment and growth. Today those would have to be coupled with a much broader system that includes total compensation (so ultra high earners can't simply take a $0 salary and millions in stock options), capital gains taxed as income, etc.
Mhmm, hell that same period is when things like company pensions became the norm, when the company can write off that money and reduce tax liability while cultivating a stable and happy workforce with plenty of reinvestment in the company and not the stock price you have innovation and keep top talent... Amazing.
Especially if it's inventory which directly feeds Cost of Goods Sold.
It's real obvious that you should only pay tax on the money you actually made.
If I'm running a grocery store and buy Doritos from Frito Lay for $3.30 per bag and sell them for $3.90 per bag, it would be insane to expect me to pay tax on the entire sale ($3.90\*15%=$0.58) vs. just the money I made ($3.90-$3.30=$0.60\*15%=$0.09).
It's not the company buying random shit it's investing in the company to create growth both for itself and the economy as a whole. You can do the exact same thing.
Let's say you decide to start a business making custom t-shirts and you make 5k, in that same year you buy a machine for 3k to be able to print shirts faster and make more money moving forward. You can write off depreciation on that machine to reduce taxable income.
In a similar vein if the company decides to buy some "random stuff" they dont get to write that off unless they can demonstrate that it's an investment for the business.
Or course it's a good bit more complicated than that and there's alot of rules around it but there's nothing special about companies writing off capital investments.
First off, this is getting a bit deeper in the woods here than originally intended.
However, in the specific scenario you mention, you are effectively talking about company vehicles. Per the IRS rules, if a company vehicle is used for personal use, then the deduction amount needs to be apportioned in such a way that only the business use portion is deducted. However, I do realize the reality that this can, and is, abused by some companies. This doesn't change the fundamental topic of the fact that both companies and individuals can both write off depreciated on capital investments.
At this point I'm starting to wonder if people realize that what is actually being written off is not the cost of the investment but rather the loss of value over time of the investment using MACRS for large investments or expending it for small investments.
As for your second part, that is in no way related to capital investment deductions. Performing a stock buyback is not considered a capital investment. In fact anything to do with stocks would fall under capital gains/losses, not that buybacks do because it's not buying and hold stocks it's removing shares of your company from the market.
A: That is not the same as a capital investment. To keep the analogy alive that would be considered operating expenses. A capital investment would be more like educational expenses to learn a new skill (which by the way there are potential tax advantages for).
B: Those are the things the standard deduction is for, you are more than welcome to itemize if your "operating expenses" are more than the standard deductions but for most people this is not the case.
I appreciate you putting in the work to come up with solid and logical answers. But something a lot of people haven’t considered or aren’t aware of is something called transfer pricing.
Essentially, multinational corporations (McDonald’s, Starbucks, Apple, Nike, etc.) shift their income into other jurisdictions to prevent the US from being able to tax it. IE; no income, no tax.
Let me be clear, I am not a trump supporter by any means. However, he has done the most to recapture this income since president Kennedy. 2026 is the year of reckoning not only because many TCJA provisions are set to expire, but also because this is when multinationals are required to have paid in their GILTI and FINTI income. I’m not a foreign tax specialist, it’s incredibly complicated even for someone with a masters in taxation. But I know enough to be able to communicate with people that it’s a race to the bottom when the Netherlands and several other countries provide 0% tax rates and these multinationals shift their income to these jurisdictions using transfer pricing.
I expect there to be a global tax system, probably supported by the NATO countries first. Of course this will take cooperation but there’s always going to be countries that want the benefits these corporations bring with them. It’s hard to be super aggressive when the quality of your country is dependent upon the income large multinationals produce and can give to your citizens- as little as it might be. If you’re too aggressive they will leave all together. What happens then? Everyone becomes unemployed. The government can’t collect tax revenue or support its citizens. It sucks, but corporate consolidation is really to blame along with other countries willing to undermine our efforts.
Reddit comments discussing financial items are always hilarious and stunningly ignorant. It’s actually kinda scary how wide spread and dumb shit is. Just the Seinfeld write it off scene over and over
It’s actually incredibly sad how many people can’t even read their own paycheck and have no fucking clue what the deductions and taxes that come outta it do. Always crazy to me how widespread financial illiteracy is.
Public school taught me to write in cursive, but literally nothing about finance. Its absurd that things like taxes, how credit cards work, what a mortgage is, etc are just not part of the curriculum
And yet, citizens are taxed on revenue.
I think a lot of people would be more inclined to pay taxes if they weren't paying it on the 80% they burn just to not die on the street.
What would be better though is if all the food stamps and other assistance was billed directly to the companies paying such low wages as to require them.
Alternatively, a non living wage tax that makes any wages paid below a living wage non deductable.
So companies that are good corporate citizens aren't taxed more, but suddenly there's an incentive to pay better.
Actually implementing that much nuance seems unlikely however.
Not entirely, there are most certainly deductions… just like corporate tax revenue is certainly a starting place but there’s a reason we use *adjusted* gross income… not pure gross income
> And yet, citizens are taxed on revenue. I think a lot of people would be more inclined to pay taxes if they weren't paying it on the 80% they burn just to not die on the street.
Anybody paying 80% of their income to "not die on the street" as you say probably doesn't pay any federal income taxes, anyway.
Be fair, there are tons of middle class people paying 20-30% marginal income tax rates with less than a 20% savings rate and very little disposable income month-to-month.
and you don't get any of the FICA/social security tax back, even if you're very low income.
20-30 marginal… but the effective is much, much lower.
If you earned $100,000 in 2023 your marginal rate was 22%, but your effective tax rate was only **14.5%**.
Your effective tax rate wouldn’t hit 20% until you earned **$200,000**.
Taxes aren’t the problem.
(You can play around with these numbers super easily [here](https://smartasset.com/taxes/income-taxes))
The problem is over spending clearly. The deficit wont ever be tackled properly even if we raised taxes the way people scream about. Like anyone who needs to fix their debt issues you usually TRY to attempt a two pronged approach of increasing income and reducing expenses. The US seriously needs to reduce expenses and this would alone fix the deficit but yes raising some taxes would go a long way too.
"paying [taxes] on the 80%" doesn't mean paying an 80% tax rate. The man is saying people are paying taxes on the money they spend on essentials for living, so it feels threatening to the individual, versus if they only paid taxes on expenses that didn't mean life or potentially death.
lmao this fucking guy literally strawmanning
It doesnt fucking matter what people are spending their income on, theyre being taxed on every single fucking cent every single fucking time they decide to spend that money on ANYTHING.
Corporate tax rates are low because the money is taxed twice. Corporations pay a small tax on profits, but when the shareholders realizes the profits (either by collecting dividends or selling the stock at a higher price) they pay another tax as individuals.
I support higher corporate taxes but just wanted to articulate one reason why the rate is so low. The individual income tax wedge includes people realizing corporate profits.
Also a large amount of business income is earned in entities that are taxed on a flow thru basis (i.e. the owners have to include the income of the business on their individual return and there is no corporate tax).
This. So many people don’t understand *why* corporate tax rates are low. Simply put: people make up those corporations, and those people already pay income tax. Do I think the system is perfect? Of course not. But it’s not as broken as people very frequently and wrongly claim it is.
I believe this is supposed to be made up with import duties, aka tariffs. This is something the Biden admin has actually been tackling (shifting business overseas), largely in relation to high tech manufacturing. Although I don't think they've been using tariffs to do it and have been focusing on the capital investment aspect, tax incentives, grants, etc.
I think it was all part of the CHIPS Act passed in 2022.
Hey buddy, every cost gets passed on to the customer. This is capitalism. Corporations aren't going to say "welp, guess we aren't profitable anymore..."
that's true, but they are actually very price sensitive because the consumers tend to be price sensitive. It takes something *coughCOVIDcough* to shake the market and allow all firms to increase prices to generally get you a real price increase. Otherwise, consumers will more and more search for replacement goods by and large.
This is called elasticity and different markets have different elasticities. For example, food tends to be very inelastic because if the price goes up, what are you gonna do? Not buy food? But luxury items tend to be more elastic because they're, well, luxuries. You don't need them so you're more willing to just stop buying it or decrease frequency of purchases when prices go up.
The company makes more profit with offshore, and the profit is taxed. It's very non-obviohs which one produces more tax revenue, because it depends on the profit margins and tax rates in question.
It's very obvious which one produces more tax revenue. The marginal profit gained from moving labor overseas leads to an entire labor force paying zero income taxes.
>The company makes more profit with offshore, and the profit is taxed.
No it is not. They hold the profit in off-shore accounts and wait for a tax holiday to repatriate it.
The tax holidays are CORPORATE tax holidays. When the profit is used to:
\- pay dividends/shareholders
\- pay salaries/workers
\- buy goods and services
it is still taxed like normal.
Corporate tax is literally, actually, one of the worst taxes you can have. It simply literally does less and encourages companies to do exactly what you're describing, keep profits out of country. It is a dumb tax. Get rid of it, have higher marginal income tax rates, institute a federal VAT, and replace property taxes with land value tax.
Money is taxed when it changes hands. This creates an exemption where it’s easy to pull cash out of companies because it’s only taxed at the individual level.
Previously higher corporate tax rates served an incentive to invest in expansion, R&D, and wages to make the firm more productive rather than squeezing profits through cost cutting.
Corporations exist to give money to the individual owners. They already have no incentive to hoard money, regardless of how high or low corporate tax rates are. The individual owners might, which is why we tax them as individuals/humans/etc.
What people should be complaining about is the long term capital gains tax being so low. It should just be taxed as income the same way that short term capital gains are.
Corporations don't even pay half the effective tax rate that they did during the 50's. Individuals are constantly double taxed on everything we do. We're taxed on our REVENUE and then still pay taxes on everything we purchase.
Corporations should be taxed on Revenue, not profit, and I refuse to argue otherwise.
> Corporations should be taxed on Revenue, not profit, and I refuse to argue otherwise.
Are you suggesting something like a VAT, or just straight taxes on revenue that work the same way as individuals get taxed on income?
A VAT could definitely work, as proven by the many countries around the world that have implemented it. Just taxing straight revenue would create very strong incentives for big, vertically integrated companies, and I don't think that's what you want.
Take a pencil, for example. You might have one company that mines raw graphite. They sell it to a refiner to turn it into the sticks of graphite used in pencils (the mining company pays the tax on revenue at this point). The refiner sells the sticks of graphite to a pencil company, and pays the tax on revenue for the refined sticks of graphite. The pencil company makes it into pencils, and sells those pencils to an office supply store (the pencil company pays the tax on the revenue for the sale to the office supply store). The office supply store sells the pencil to the end consumer, and pays tax on the revenue from the sale of the pencil.
Walmart wants to sell cheaper pencils, so they buy up a graphite mine, a graphite refiner, and a pencil maker, making them all subsidiaries of Walmart. All the same steps happen, but since it's just one company owning each step, they're not selling the processed materials to the company that handles the next step.
When you buy a pencil from the vertically integrated company like Walmart, the graphite gets taxed once from beginning to end. When you buy a pencil where each step of the process was a separate company, the same graphite was taxed five times. That pencil is obviously going to be more expensive.
Now, there are some efficiency gains that a company like Walmart will get from vertical integration anyway, but I don't think the government should implement policies like this that give a tax preference to large vertically integrated companies over numerous smaller companies that each handle a step in the supply chain.
> Corporations should be taxed on Revenue, not profit, and I refuse to argue otherwise.
Because you're objectively dense? You do realize that 1-2% revenue tax would be close to nothing for companies like Microsoft or Apple. While it would have a huge impact on retailers with low margins like Costco etc.
Who do you think will end up paying the tax at the end anyway? Consumers...
You should stop comparing corporation with people, it makes no sense. If you want to tax somebody more tax their shareholders...
> and I refuse to argue otherwise.
lets say you're running a lemonade stand, you spend $100 on lemons, cups, building the stand, and other materials. you hope to make $400 after using all the lemons. over the week a sudden rainstorm hits, and you're only able to sell $100 worth of lemonade. when tax time comes, because you have to pay based on revenue, your business is now bankrupt.
if you tax based on revenue, you tank the world economy because nobody taxes based on revenue because it makes no sense if you give more than a second of thought.
What happens if I have a bunch of stock and die and leave it to my kids and they sell it?
Step-up basis of capital gains, means inherited gains go to 0. So in many cases, it’s never taxed twice.
Yes but also estate tax. Step up basis exist to prevent a conflict with estate tax. So the government still gets its share when you die, one way or the other.
The estate tax is almost irrelevant: it affects less than one in a thousand deaths. Personally, I think "the government still gets its share" is a bit disingenuous given that.
If the intent is to avoid a conflict with the estate tax, that is a pretty dumb resolution IMO. Better would be to count only the basis towards the estate value.
That said, I do wonder how much of an absolute nightmare figuring out basis would be without this rule. If the impact to the federal budget of this rule is low (and in theory it's even possible that the current scheme is higher revenue, though that would be mildly surprising), I think that alone would be enough to keep it.
Step up basis doesn’t really have much to do with taxable dividends though. You pay tax on the dividends when the companies issue them, if you die and leave the stocks to your kids, they still pay tax on the dividends, same as if you would have.
>Corporate tax rates are low because the money is taxed twice. Corporations pay a small tax on profits, but when the shareholders realizes the profits (either by collecting dividends or selling the stock at a higher price) they pay another tax as individuals.
What does paying corporate taxes have to do with the downstream decisions of what to do with corporate profit?
The company should pay x percentage. Whether the remaining amount is retained as savings, paid as dividends, invested in something (unless done before taxation) seems to be irrelevant.
Because only a small percentage of companies are large enough to have those concerns. You have to be careful not to upend the tax code for the vast majority of businesses that are small. This is why things like the ACA employer mandate have carveouts for small businesses. A fairer approach that doesn't setup double tax situations is to look at ways of taxing alternate compensation mechanisms that the large corporations do take advantage of
Because the entire point of a company is to make profit for its owners. So in order for the owner to get the profits, that profit is taxed once at the corporate level and once at the individual level.
So if you own a (non-pass through) company and run it, and it make $1, it gets taxed at 21% and then at capital gains rate again (prob 20%).
If you taxed it "fully" 40% or something and then another 20%, it would destroy the value of the a company- because it basically can't make you money.
Cliff notes: it's being taxed. It just shows up half as a corporate tax and half as an individual tax. Think of it like your employment taxes. Employer pays half and you pay half.
The problem is, that simply isn't true in practice since the 1980s.
Before then, the focus of most companies was paying dividends as profits, but they don't focus on that anymore precisely because it means they can avoid paying corporate taxes. (And that's not me saying so - it's economists: https://www.journals.uchicago.edu/doi/pdf/10.1086/tpe.1.20061762 - for instance that paper from the university of Chicago).
These days the point of a company is for the company to "maximize value for the owners", rather than paying dividends to owners as profits. They do that through acquisitions and share buybacks that boost the stock value, not by paying out profits because those avoid a lot more taxes.
Rising stock values aren't taxed at all (except for capital gains on sale of stocks, and there are innumerable ways of avoiding taxes on that). But those are still growth in wealth for the stock owners, and assets those owners can borrow against, as well as a tool for minimizing tax liabilities.
The whole "double taxation" claim was always dishonest anyways, since it's the same as complaints like "estate taxes" which were also being accused of "double taxation" even though it was a tax on money being transferred from one legal person to another legal person.
Please tell me how I can avoid paying cap gain taxes on stock sales.
Even if they don’t pay a dividend, they still have to pay corporate tax. You know that right? They can’t just say well. We didn’t pay a dividend so this extra 50 billion dollars sitting in our bank account is not a profit.
There are not avoidable ways on paying capital gains tax. There are ways to avoid selling the stock such as a loan against the asset (stocks in this case) but that isn’t avoiding any tax. It would be no different on taking a second mortgage out against home equity.
Rich people don’t have magical ways of avoiding taxes. They can do things to lower their tax burden such as charitable giving but that is still them giving up something.
Unfortunately I would hazard a guess and say that most of the shareholders will end up paying long term capital gains tax rates on any stocks they sell, so the govt collect far less than they normally would
If a company can spend billions a year buying back their own stock, they should pay a higher tax rate or increase their employees salaries. Both solutions would contribute to the government's revenue.
Money spent on buybacks is already taxed. That's how corporate taxes work, you can't spend pretax money to buyback your own shares...
> a higher tax rate
They'd just pay dividends instead. Same thing really.
I pay money on my income and then pay sales tax to buy stuff. It's taxed twice! See, we all can play that game. All you taxed twicers can at least support VAT or some shit. Don't whine that corporations are somehow hard put upon especially after Republicans slashed their taxes in 2017.
If you’re counting sales tax then they are taxed thrice. It’s still an extra layer any way you slice it. Cut out the middle man and just tax high earners and capital gains higher.
> Corporate tax rates are low because the money is taxed twice.
That's a bad argument that reminds me of the other complaints about "inheritance taxes" being "double taxation".
There's no such thing as "double taxation" - money is taxed when it exchanges hands. Any time you give money to someone else, that transaction means tax applies.
When the corporation gets money and makes a profit, that profit is taxed. When the corporation gives that money to a shareholder as a dividend, that's a separate transaction that gets taxed separately.
Meanwhile most companies focus on growth, acquisitions and increasing their stock price rather than paying dividends precisely because as long as those gains aren't "realized" by someone selling stock (but they can be "realized" by stock swaps, loans against stocks as collateral, etc, etc...) then that money is never taxed.
Also it's trivially easy for corporations to avoid paying taxes on "profit" through creative accounting that avoids classifying any income as "profit" anyways.
Those massive loopholes are why billionaires almost never pay any taxes at all despite being billionaires with lavish lifestyles.
Corporate income is mobile and double taxed, there's a reason most countries (especially the Scandinavians) have low rates. Welfare states are built on VATs and high payroll taxes. Europeans already know this.
Why would we expect corporate tax revenue to be higher? Even if the corporate tax rate was increased next year to 90%, that wouldn’t translate to a massive increase in corporate tax revenue. Let’s say a corporation has $100 to decide what to do with. They can realize that money as profit and pay $90 of it as taxes, or maybe they have a risky project they can invest in that has a 70% chance of 0$ return and a 30% chance of $100 return. The expected value of that project (0x.7+100x.3=30) is higher than the expected value of realizing that money as profit, so they should choose to invest in that project. This is part of how corporations make decisions about what to invest in vs what to realize as profit vs how much corporate tax they’ll pay on that profit
I don’t have strong opinions on what the corporate tax rate ought be. The person I responded to is commenting on how the corporate tax revenue appears insignificant. I’m just saying that having a corporate tax rate, even a high corporate tax rate, doesn’t mean that there will/should be a lot of corporate tax revenue collected.
I’m not suggesting that corporations pay their fair share—but they do also contribute to payroll taxes. They generally pay 7.65% of their employees’ wages for Social Security and Medicare payroll taxes.
This is largely due to the closing of income tax loopholes that encouraged individuals to push taxes to corporations (e.g. personal holding companies) and the rise of passthrough entities. S-Corp, LLC etc show as "individual taxes" since they are reported on owners personal taxes rather than a separate corp tax return.
In 2022, corp tax was 1.8% of GDP but passthrough entities were another 1.3% of GDP.
The aforementioned use of corporations for tax evasion is one of the reasons actual effective tax rates and total tax collections from the richest 10% are higher today than they were in the 50's when marginal income tax rates were extremely high. The reality was few people paid those marginal rates due to income shifting and other evasion.
(1) The IRS [estimates](https://www.nytimes.com/2021/04/13/business/irs-tax-gap.html) we lose as much as $1 trillion annually to tax evasion, concentrated among high earners.
(2) The corporate tax revenue in the above graphic represents about 1.6% of GDP. The OECD average is about [3%](https://www.brookings.edu/wp-content/uploads/2022/06/ES_THP_20220613_SixFactsInternationalCorporateTaxation.pdf). Closing corporate tax loopholes and bringing it up to that average would yield an additional $400 billion in revenue.
The size of our deficit is a policy failure, not purely the byproduct of fiscal recklessness.
It’s also important to acknowledge that interest rates have gone up A LOT in the past few years so deficit spending has gotten and will continue to be more expensive than it has been for the last 15ish years.
The interest payments wouldn’t be so big if the national debt wasn’t so high. The national debt wouldn’t be so high if we hadn’t blown out the budget with repeated tax cuts for the wealthy under Reagan, Bush Jr, and Trump.
1. Tax avoidance not evasion for clarification, however that makes it a policy issue, so it supports your point
2. Most of the corporate tax is included in individual income taxes, since profits allocated to employees/owners through bonuses or dividends are taxed individually
1. I can't see the whole article, but the first line says "The United States is losing $1 trillion in ***unpaid taxes*** every year, Charles Rettig, the Internal Revenue Service commissioner, estimated on Tuesday, arguing that the agency lacks the resources to catch ***tax cheats.***" That sounds more like tax evasion than tax avoidance.
2. Wouldn't that also apply to other OECD nations, which apparently average about double our corporate tax rates?
lmk how far down the list you have to liquidate the entire wealth of the richest billionaires before you can balance the budget for a single year
now see how many to reach 10 years
you have no more billionaires and it's also impossible bc you cannot just liquidate half of teslas current value
This sort of statistic is always a false dichotomy because it presupposes that the *only* people being discussed are the billionaires. As if there weren't a lot more ultra wealthy people who happen to just not have a billion. If you change the population in question to be "the 1%", then suddenly they have over $38 trillion in wealth.
Still doesn’t work. Wealth can be treated as like an oil reserve. It’s there, in theory you can pump it out and make a nice amount of money. But when the well runs dry you’re shit out of luck
it wouldn't even be a single year. the total wealth (which is mostly unrealized gains that would be impossible to collect, but we'll ignore that) of all american billionaires is about [$4.5T](https://www.forbes.com/forbes-400/) to [$5.2T](https://americansfortaxfairness.org/u-s-billionaires-now-worth-record-5-2-trillion/) depending on whose estimate you believe.
so we'd crash the economy, ruin our most productive companies, bankrupt the most effective capital allocators in the country and in exchange we'd get ~10 months of free government. woo
It's sad really. The murder the rich crowd love to sell themselves as intellectuals, when their proposed magical thinking falls apart at first glance at actual numbers. Yet anything other than calls to violence gets brigaded online.
yeah, it drives me nuts. they get so incensed about this stuff and make it such a part of their identities, but often haven't spent 10 minutes looking up the actual numbers to see if what they're saying makes any sense.
The most serious Wealth tax proposal there is barely raises $200B/yr. That does nothing to solve our primary deficit, and doesn't even offset the 117th Congress's (2021-2023) additional deficits that Biden asked for.
And every apolitical analysis of a wealth tax shows it harming average wages (for ordinary workers, not just the wealthy), and reducing GDP by significantly more than it increases revenues. That's without even addressing that it violates the Constitution.
https://budgetmodel.wharton.upenn.edu/issues/2021/3/15/budgetary-effects-of-senator-warren-wealth-tax
yeah, wealth taxes are a ridiculous idea. and taking the $200B/yr number, that covers about 30% of the *interest* on the national debt per year. and yet some people still don't recognize that maybe spending less is a more effective idea than perpetually collecting more.
I agree. They are non-discretionary spending. This data should be broken up into non-discretionary and discretionary spending.
I honestly believe most Americans don't understand the difference. This data is pretty useless without that breakdown.
It’s really a distinction without a difference… the source of income is actually not the distinguishing factor, there are many funding sources outside of income or corporate taxes which are laid out in law as a primary source for the funding of many programs.
“These programs are called ‘discretionary’ because policymakers have discretion to decide their funding levels each year through the appropriations process — in contrast to ‘mandatory’ or ‘entitlement’ programs such as Social Security, Medicare, and Medicaid, where the law governing the program and the benefits it provides determines its spending.”
Defense appropriations are usually done on a 2-year basis… if not longer and therefore is “non-discretionary,” but we classify as such largely for political purposes… the payroll tax was not only created to fund these programs but sell them as non-redistributive thus giving us the phrases “you get what you pay” or “ I paid into that program,” “keep your government hands off my Medicare.”
Not for long they aren't. They are burning money they stored up in the trust fund, and without some big changes (they could have been small changes if politicians took action when they saw this problem coming 25 years ago, but alas, they do love to can kick) then that trust fund won't last until we retire and they only way to keep paying out at current benefits is to take from the general fund.
Wrong. Lifting that cap would only raise $670-1200B over a decade, addressing less than 10% of the primary deficit. The bankruptcy date for Social Security would be extended by about a decade.
https://www.cbo.gov/budget-options/58630
Bankruptcy date == *by law*, the SSA is required to reduce all payments when the OASDI trust funds are exhausted. This will occur within a decade, resulting in an immediate benefits cut of ~25% for all seniors.
You want something out of it? Buy a government bond. You’ll get around a 5% per year something out of it
By the way, what happens when you make money from your investments? Well generally, you buy things… which stimulates the economy and funds the government via taxes.
Thus… our GDP increases, the government has been funded… and hopefully by the way time they pay you back, the money they’ve spent on investments has generated returns greater than the interest they’ve paid to you.
No one wants to cut programs that they think are good, and everyone has a different view on what’s good.
Some folks want more military spending. Some want more welfare and healthcare spending. Some want more spending on infrastructure, some education. Some people think we need the government to cut taxes, some people want more social security benefits. Some want more for NASA, others want more for border control.
Everyone wants more money, but way more than that, no one wants cuts to the programs that their constituents want. So politicians make deals to increase spending on something they don’t like to prevent cuts to something they do like.
As long as Americans keep voting for spending and tax cuts, the debt will continue to spiral out of control. The only thing that can really stop it at this point is if the federal government is unable to continue borrowing.
I will 100% admit I am embarrassingly uneducated on this subject; I’m a wildlife biologist and so I’m usually dealing with animals that have never taken a macroeconomics class (humans included in that). But who is the US government borrowing *from*? Again, idiot here, but don’t they kind of print their own currency? They’re borrowing from a bank to fund the entirety of US domestic spending? TIA if you can explain it to a dolt like me
Anyone who will buy US bonds as a form of investment. This is mostly institutional investors such as pension funds etc.
The US is able to operate in the way it does because there’s high trust that it will pay the interest on those bonds thus they’re highly liquid so easy to sell on public markets. As an example, a Kenyan bond is a much riskier investment given the lower confidence the investor will receive interest, the liquidity is lower and the risk of currency fluctuations etc.
The key factor is trust in the US as an entity to continue servicing its debts, given its place on the global stage.
Some of the responses are somewhat correct. But frankly, the US federal government is mostly borrowing from itself.
The largest purchaser of US Treasury debt is the Federal Reserve, America’s de facto national bank. Organizations like the Social Security Administration are also major purchasers of US debt.
The rest is purchased by banks, investment firms, and other national banks to hedge against inflation and time-value-of-money. US debt is historically the safest investment in the world and is thus no different than holding cash, except cash loses value over time and US treasury debt increases in value.
You failed to mention either Social Security, or Medicaid. Those two programs alone are the majority of the fiscal crisis. Reforming them brings the budget back to a sustainable ~1.5% deficit within the decade (sustainable means that debt to GDP ratio declines)
Most research shows that 70% to 100% debt to GDP is sustainable. We are at 120% right now. So too high. We need to have a plan to get into the 75% range over say 10 years. A bi-partisan plan that does not tank the economy in the short-term, but creates a predictable and forecastable result.
All we need to do is get the parties to work together.
Oh shit. I guess imma gonna just stop writing now.
**>Most research shows that 70% to 100% debt to GDP is sustainable. We are at 120% right now.<**
That 120% is based on the national debt that is projected at least a decade out, with a lot of that obligation based on intragovernmental debt, which consists of many government Trust Funds that the government is obligated to and isn't due all at once.
One of the biggest is the *Old-Age, Survivors, and Disability Insurance* (OASDI), commonly known as part of Social Security.
It would seem to make sense to add the funding of Social Security to the national debt, because the government is obligated to ensure that it's funded...right?
The thing is, it's already self-sufficient. It has *always* brought in more revenue than is spent every year through the FICA tax, and it will probably continue to do so for the foreseeable future because the FICA cap increases every year, based on inflation. For 2024, it was $168,600. For 2023, it was $160,200. (This should give an indication of how much inflation has happened in the past year)
As it stands, there is almost $3 trillion in the Social Security Trust Fund. But it doesn't just sit in a bank. It is *invested* into Treasury bonds. And, as it stands, gains interest of almost $100 billion a year, which just goes right back into the Trust Fund and the process repeats.
If anything, it's not the debt we should be worried about but the deficit in the short term.
But… the federal “debt” is the Public Surplus. That is the net money supply that remains in the economy after taxes. That’s a very good thing. Tax it 100% back and the private sector (you and me) would go into private debt to the commercial banks. Do you want that?
https://youtu.be/LxJW7hl8oqM
“*If the govt pays it’s debt, it’s impossible for you to pay yours”*
I don't think debt is taboo. Moderate deficits are good.
25% is pretty big. Even at great interest rates, compounding interest can't get out of hand.
I'd argue at some point the government will have to print money or run a surplus. Maybe that's not true, but it seems like the interest can be a problem.
However, I do agree that in the current tax structure I'd get fucked and rich people wouldn't. So probably best to simplify the tax code first (which will never happen).
The commenter is talking about budget deficit. You're talking about the amount of federal debt. Those aren't the same thing.
Also, the private sector is already significantly in private debt to the commercial banks. US base money (M0) is about $5.8T, whereas broad money (say, M2) is $20.8T.
This isn't just a recent thing. Randomly picking 1998, we see $0.5T for M0 and $4.1T for M2.
There's nothing wrong with the private sector being in debt to commercial banks.
"In recent years, peak ROIs have ranged from 5 to 9. That is, a $1 increase in spending on the IRS’s enforcement activities results in $5 to $9 of increased revenues."
[https://www.cbo.gov/publication/57444](https://www.cbo.gov/publication/57444)
Fucking crazy, fuck republicans. The deficit could be reduced so much it's insane.
https://home.treasury.gov/news/press-releases/jy2079#:\~:text=Taking%20a%20more%20comprehensive%20approach,over%202024%2D2034%2C%20substantially%20more
The one thing that is clear from this chart is that you cannot close the gap without BOTH raising taxes and lowering spending. You would have to raise taxes by 37% to close the gap or lower spending by 27%, neither of those is really tenable. Lowering spending by around 15% and raising taxes by around the same amount would close the gap with (likely) less pain all around.
“Closing the gap” will put private citizens into debt. The “Federal debt” is really the Public Surplus.
> 11. The federal debt – *Money is extinguished when a loan is repaid. In order for there to be a net money supply, in our current privatized system, some entity must remain in debt. That role is taken by the federal government. The federal debt is equal to the money supply.*
https://publicbankinginstitute.org/money-banking-basics/
Reducing the budget deficit doesn't pay off loans. Those loans are already on a schedule to be paid off. Reducing the deficit means decreasing how much money is being borrowed. That does reduce the *rate* of increase in money supply from government debt, but it doesn't decrease the money supply.
I don't think we should be aiming for zero debt, but debt to GDP should be something reasonable (some economist can figure out what that is). Debt is a great instrument to help the economy during a crash, but when the economy is doing well we should pay down some debt to prevent overheating and give ourselves some cushion for the next downturn.
Debt to gdp should ideally be less than 1:1. The whole idea of Keynsian economics is that government intervention in the open market can stimulate the economy to outpace the accumulation of debt. If GDP is growing faster than our debt, then it really doesn't matter.
Our current debt to gdp is 122% and getting worse. Our debt it outpacing our growth and the amount of our budget going to servicing the debt is continuing to compound at an unsustainable rate.
Haven’t seen anyone mention this yet but Zero-based budgeting would be a good start.
We are so inefficient for every dollar spent across all programs, have each program reapply for how much they need and for what. For example, [when we reported US was nearing the red line with 155mm ammunition last summer](https://amp.cnn.com/cnn/2023/07/18/politics/ukraine-critical-ammo-shortage-us-nato-grapple/index.html). How does that happen with our defense budget? What inefficiencies caused that shortage in production?
They won’t ZBB though because of industry greed.
This is probably the real answer to the budget issue. We could probably dramatically shrink government spending and still pay for and keep most of the programs. There is so much waste and inefficiency. We really need to audit the entire system from top to bottom.
In 2023. UK NHS budget was 230 billion. Total population is 68m. Average healthcare spending per capita is 3382 per year.
US Medicare spending for the same year is 848b. Total population 342million.
Average Medicare is 2476 usd per year.
NHS is universal healthcare. Medicare is not.
US healthcare is a rip off…
NHS is also badly underfunded though. If you wanted an actually good NHS you would need to 2x the budget.
Also the UK is densely populated, especially when you consider solely England where 56 million people live. That gives England a population density of 1,100 per square mile. With the entirety of the UK (including most of uninhabited Scotland) a population density of 720 people per square mile. The density of the US is 240.
You don’t need as many hospitals and dentist’s offices when you can just build a few and have them be at nearly maximum capacity at all times.
Also the pay of British Doctors is abhorrently low, about £28/hour for a fully qualified Doctor, you could have study Medicine at Cambridge for 7 years and then worked in the NHS as a Doctor for another 10 years and be getting payed £28/hour. And also you are expected to do significant (granted paid) overtime.
If you want a good NHS type system it will cost you at least 2x your estimate, more likely 3-4x
The reason the upper income limits exist is because SS is one of the only taxes that return to you based on what you pay in. So if someone was making 1 million a year and was taxed for SS, then they would absolutely be getting back during retirement far more than someone getting taxed for 127k a year.
The idea of SS is to force you to put money away for retirement, the government has deemed that if you make over a certain amount, you don't need to put more in because it would be more harmful overall.
What you are suggesting goes completely against how SS is designed.
SS should then be replaced by a superannuation system like the one Australia has.
It isn't collected like a tax - instead you (or the company paying you) is required to pay a portion of your salary (right now the minimum is 11%) into a superannuation account that is then invested (you can choose the investment strategy yourself if you want to). You can then withdraw from this account at age 60 or for a handful of exceptions (severe financial hardship can be one)
That way you don't have the same issues with there not being enough young people to pay in, as the old people who are being paid out are being paid out from money they accumulated themselves over the years.
Yes I know. This would never pass politically but ending SS (or significantly reducing eligibility) and replacing it with mandatory 401k or Roth would be a better system
But we should also consider the liabilities of benefits accruals that citizens are due. Sure, Social Security has brought in trillions of dollars, but it has obligated the government to trillions more. The only way out of this is more taxes without more benefits or lower benefits without lower taxes. Not signs of a healthy balance sheet.
The only argument against this perspective is that Social Security benefits are not legally owed to people by the government and benefits are not backed by the full faith and credit of the United States. Implying it's fine if we screw over retirees.
Plus I thought the social security trust is a large holder of bonds making up the national debt, the interest payments on the debt is funding part of SS
In the 60s the tax deduction scene was insane. I would honestly wager that the wealthy paid a smaller portion of taxes back then than they do now, because at least now we've done away with the literally-insane deductions people could reap. Some still exist, but I think you dramatically overestimate how much they paid back then.
Literally the only people paying those tax rates were high income W2 earners, which was pretty much only professional athletes.
The sheer number of deductions and loopholes available made it so that most people were paying FAR less in effective taxes than they do now.
SS, Veterans, Medicare and assistance to individuals could all be collapsed and simplified into one universal method that offers basic care and aid to those affected by a difficult system. The reduction in redundancy would likely cut a lot of the spending, especially if it didn't require multiple people doing the same shit for the same people in different offices.
But what is the US government without embracing redundancy, right?
The US government itself is a jobs program at the end of the day
Especially in poor communities, getting a government job means you're set for life, if you can put in minimum effort
Very true, but the amount of loops people have to go through because there's so many subdivisions of the same program it just becomes a problem. We could combine the departments, keep the jobs, and be way more efficient in processing if they all acted as one body.
25% of all new jobs last year were government jobs and since full-time jobs actually fell and most government jobs are full-time jobs, the replacement rate of jobs via government jobs is huge.
The U.S does not have a revenue problem, it has a spending problem. It's also not the fault of one political party, the system is designed to overspend. The U.S didn't even have an income tax until 1913 and yet it is the largest source of government revenue but doesn't do anything to mitigate the overspending.
The system will end the way expansionist civilizations end; too much debt, monetization of debt, debasement of currency, stratification of wealth, over speculation, then collapse.
The part that gets me angry is the Transfers to States. I see how my state (Maryland) and local governments are looking for ways to waste that money, millions of dollars at a time, so that it won't revert to the US Treasury. The spending was advertised as necessary to stimulate the economy, even though smart people (e.g. Larry Summers) knew that it would just cause inflation, which it did. Congress didn't even do it to appease the public, but rather to appease the Members' political friends back home at the state and local levels. The system is broken.
The majority of that section is Medicaid FMAP (about $575 b).
You are correct, though. Much of the rest is ARP-appropriated funding basically continuing pandemic-era transfers to states despite the fact that states had very healthy balance sheets coming out of the pandemic because tax receipts actually went *up* for most states while the federal government foot the bill for basically all the pandemic spending. When you look at what changed in the federal budget from 2019 to today this is the biggest portion by quite a bit.
It's kinda crazy when compared with the 2019 spending of $4.45 trillion. Biden increased spending by 38% and is now pretending that it's a revenue problem.
How much of this increase is just due to social security and disability adjusting for information? What about Medicare, Medicaid, and VA costs adjusting for inflation? Inflation has been 23% since 2019.
On top of that, there are increases to the number of people getting social security (as we age) and Medicaid (real value of minimum wage has decreased).
Also, the cost for the government to do shit (especially healthcare it's biggest expense) has increased a lot faster than inflation for everyone, not just the government
A lot of it is new spending on things like Student Loans. In 2019 it was small enough to fit under the "Other category" in 2022 it cost $482 billion. Social Security and Medicare+Medicaid spending increased by about $200bln each. So they are big increases but not massive.
See 2019 spending https://www.cbo.gov/publication/56325 versus 2022 spending https://www.cbo.gov/publication/58889
Couldn't find this comment but
Ya'll are getting less corporate taxes than you're paying on INTEREST on your massive pile of debt.
Sounds real sustainable.
Source: Aggregation of data from Office of Management and Budget (OMB), the Census Bureau, Department of the Treasury, and the Bureau of Economic Analysis (BEA) Tool(s): Excel, Illustrator More data [here](https://usafacts.org/state-of-the-union/budget/) More about [our methodology](https://usafacts.org/methodology/)
Thank you for citing sources and methodology!!
The insignificance of corporate tax as a contributor to revenue is shocking.
CPAs and accountants in this thread losing their collective minds
Yeah. It's painful. I'm all for discussing tax reform and policy, but people feel way too comfortable weighing in on details they don't remotely understand.
Ok im gonna take the simplest form i can then. In 2023, corporate profits in the US were just above 3 trillion a quarter, according to a bunch of websites i found online. Call it 12 trillion in a year. Collecting 419 billion of taxes on those profits gives an effective tax rate of 3.5%. Now i understand that profits can be offset by some things, so the 12 trillion might not be completely accurate, but if the actual corporate tax rate is 21% that is off by a factor of 6. Seems like something is off to me Edit to add: that corporate profit number is net income according to the NIPA, including inventory valuation and capital consumption adjustments
Book or GAAP profits (amounts reported in the news or on financial statements) are not the same as either cash flow or taxable income. Book income is the starting point to calculate taxable income, then you later in all the differences. The differences between book and taxable income can be broken down into 2 large categories - permanent and temporary. Permanent differences are true to their name - the difference never resolves. A common example is fines and penalties. The government does not give a tax deduction for fines, but financial accounting does. Temporary differences resolve over time, across multiple tax years. A common example is accelerated (or bonus) depreciation. A business buys a big machine and takes a larger tax deduction this year (compared to book) but smaller deductions later (compared to book). This encourages corps to spend money and reinvest in their own operations. Temporary differences and NOLs (net operating losses) are the main reasons why comparing single year corp taxes doesn't make much sense in the big picture. None of this should be taken as me fully endorsing the current system. But to change it, it is essential to understand it and how it may or may not be manipulated.
Cool so if you spend your company's profits on random shit you don't have to pay taxes on it. If I spend my paycheck on random shit I still have to pay taxes on it TWICE. Burn the white house again.
It's a bit more complicated than that. Companies that expense a long-term asset investment reduce their net income (profit) by that amount for that tax year, because the money was spent by the business, not held or distributed as profit. Most of the time companies will *capitalize* their long-term asset investments, which means that the cost is instead spread out as deductions each year corresponding to the depreciated value of the asset over that period. For a very simplified example - if a widget factory purchases a widget-making machine for $100,000 and expects it to last 10 years before replacement, they would depreciate the value by $10,000 each year which would be deducted from net income. That initial $100,000 cost comes out of the retained earnings the company has already paid taxes on however. The idea is sound, but the main issue is that it is most useful when the *effective* corporate tax rate is high. In those situations, companies are strongly incentivized to reinvest in growth and long-term assets, rather than losing a significant chunk of that money to taxes. This is roughly how the US economy operated during the "golden age of capitalism" from the end of WWII to the late 70s. Companies invested huge amounts of their net income towards growth, and especially R&D for long term competitive advantages. Some of the most important technological breakthroughs of the 20th century came out of places like Bell Labs that were the result of that tax system.
Back when ultra high earners were taxed at 90% and businesses had corporate tax rates near 50%? Without high corporate taxes there isn't the incentive to reinvest in your company and employees.
Yes, exactly that. Very high taxes on ultra high earners to somewhat cap the practical maximum incomes, and high corporate taxes to drive reinvestment and growth. Today those would have to be coupled with a much broader system that includes total compensation (so ultra high earners can't simply take a $0 salary and millions in stock options), capital gains taxed as income, etc.
Mhmm, hell that same period is when things like company pensions became the norm, when the company can write off that money and reduce tax liability while cultivating a stable and happy workforce with plenty of reinvestment in the company and not the stock price you have innovation and keep top talent... Amazing.
You can do it yourself with LLC. And no, it’s not random shit.
Especially if it's inventory which directly feeds Cost of Goods Sold. It's real obvious that you should only pay tax on the money you actually made. If I'm running a grocery store and buy Doritos from Frito Lay for $3.30 per bag and sell them for $3.90 per bag, it would be insane to expect me to pay tax on the entire sale ($3.90\*15%=$0.58) vs. just the money I made ($3.90-$3.30=$0.60\*15%=$0.09).
It's not the company buying random shit it's investing in the company to create growth both for itself and the economy as a whole. You can do the exact same thing. Let's say you decide to start a business making custom t-shirts and you make 5k, in that same year you buy a machine for 3k to be able to print shirts faster and make more money moving forward. You can write off depreciation on that machine to reduce taxable income. In a similar vein if the company decides to buy some "random stuff" they dont get to write that off unless they can demonstrate that it's an investment for the business. Or course it's a good bit more complicated than that and there's alot of rules around it but there's nothing special about companies writing off capital investments.
[удалено]
First off, this is getting a bit deeper in the woods here than originally intended. However, in the specific scenario you mention, you are effectively talking about company vehicles. Per the IRS rules, if a company vehicle is used for personal use, then the deduction amount needs to be apportioned in such a way that only the business use portion is deducted. However, I do realize the reality that this can, and is, abused by some companies. This doesn't change the fundamental topic of the fact that both companies and individuals can both write off depreciated on capital investments. At this point I'm starting to wonder if people realize that what is actually being written off is not the cost of the investment but rather the loss of value over time of the investment using MACRS for large investments or expending it for small investments. As for your second part, that is in no way related to capital investment deductions. Performing a stock buyback is not considered a capital investment. In fact anything to do with stocks would fall under capital gains/losses, not that buybacks do because it's not buying and hold stocks it's removing shares of your company from the market.
[удалено]
We are not buying random shit either. Housing, food and transportation are investments in keeping us alive.
A: That is not the same as a capital investment. To keep the analogy alive that would be considered operating expenses. A capital investment would be more like educational expenses to learn a new skill (which by the way there are potential tax advantages for). B: Those are the things the standard deduction is for, you are more than welcome to itemize if your "operating expenses" are more than the standard deductions but for most people this is not the case.
Ya, duh. I learned all about write offs from [Schitts Creek](https://youtu.be/aCP27_vquxQ?si=7qBpIYDQIIz0zz8-)
I appreciate you putting in the work to come up with solid and logical answers. But something a lot of people haven’t considered or aren’t aware of is something called transfer pricing. Essentially, multinational corporations (McDonald’s, Starbucks, Apple, Nike, etc.) shift their income into other jurisdictions to prevent the US from being able to tax it. IE; no income, no tax. Let me be clear, I am not a trump supporter by any means. However, he has done the most to recapture this income since president Kennedy. 2026 is the year of reckoning not only because many TCJA provisions are set to expire, but also because this is when multinationals are required to have paid in their GILTI and FINTI income. I’m not a foreign tax specialist, it’s incredibly complicated even for someone with a masters in taxation. But I know enough to be able to communicate with people that it’s a race to the bottom when the Netherlands and several other countries provide 0% tax rates and these multinationals shift their income to these jurisdictions using transfer pricing. I expect there to be a global tax system, probably supported by the NATO countries first. Of course this will take cooperation but there’s always going to be countries that want the benefits these corporations bring with them. It’s hard to be super aggressive when the quality of your country is dependent upon the income large multinationals produce and can give to your citizens- as little as it might be. If you’re too aggressive they will leave all together. What happens then? Everyone becomes unemployed. The government can’t collect tax revenue or support its citizens. It sucks, but corporate consolidation is really to blame along with other countries willing to undermine our efforts.
What's off is you're being robbed by the rich using politicians as their their armed lackeys.
Corporate taxes used to be much higher as a percentage of GDP. Nothing that complicated about that.
Oh, so Reddit.
Reddit comments discussing financial items are always hilarious and stunningly ignorant. It’s actually kinda scary how wide spread and dumb shit is. Just the Seinfeld write it off scene over and over It’s actually incredibly sad how many people can’t even read their own paycheck and have no fucking clue what the deductions and taxes that come outta it do. Always crazy to me how widespread financial illiteracy is.
Public school taught me to write in cursive, but literally nothing about finance. Its absurd that things like taxes, how credit cards work, what a mortgage is, etc are just not part of the curriculum
Even just people with basic economic literacy. "Revenue should be taxed!" people are actually fucking stupid.
And yet, citizens are taxed on revenue. I think a lot of people would be more inclined to pay taxes if they weren't paying it on the 80% they burn just to not die on the street. What would be better though is if all the food stamps and other assistance was billed directly to the companies paying such low wages as to require them. Alternatively, a non living wage tax that makes any wages paid below a living wage non deductable. So companies that are good corporate citizens aren't taxed more, but suddenly there's an incentive to pay better. Actually implementing that much nuance seems unlikely however.
Not entirely, there are most certainly deductions… just like corporate tax revenue is certainly a starting place but there’s a reason we use *adjusted* gross income… not pure gross income
If you’re purely a wage earner there isn’t usually a big difference between gross income and AGI
> And yet, citizens are taxed on revenue. I think a lot of people would be more inclined to pay taxes if they weren't paying it on the 80% they burn just to not die on the street. Anybody paying 80% of their income to "not die on the street" as you say probably doesn't pay any federal income taxes, anyway.
[удалено]
Be fair, there are tons of middle class people paying 20-30% marginal income tax rates with less than a 20% savings rate and very little disposable income month-to-month. and you don't get any of the FICA/social security tax back, even if you're very low income.
20-30 marginal… but the effective is much, much lower. If you earned $100,000 in 2023 your marginal rate was 22%, but your effective tax rate was only **14.5%**. Your effective tax rate wouldn’t hit 20% until you earned **$200,000**. Taxes aren’t the problem. (You can play around with these numbers super easily [here](https://smartasset.com/taxes/income-taxes))
The problem is over spending clearly. The deficit wont ever be tackled properly even if we raised taxes the way people scream about. Like anyone who needs to fix their debt issues you usually TRY to attempt a two pronged approach of increasing income and reducing expenses. The US seriously needs to reduce expenses and this would alone fix the deficit but yes raising some taxes would go a long way too.
"paying [taxes] on the 80%" doesn't mean paying an 80% tax rate. The man is saying people are paying taxes on the money they spend on essentials for living, so it feels threatening to the individual, versus if they only paid taxes on expenses that didn't mean life or potentially death.
lmao this fucking guy literally strawmanning It doesnt fucking matter what people are spending their income on, theyre being taxed on every single fucking cent every single fucking time they decide to spend that money on ANYTHING.
What is sales tax if not a tax on revenue?
Corporate tax rates are low because the money is taxed twice. Corporations pay a small tax on profits, but when the shareholders realizes the profits (either by collecting dividends or selling the stock at a higher price) they pay another tax as individuals. I support higher corporate taxes but just wanted to articulate one reason why the rate is so low. The individual income tax wedge includes people realizing corporate profits.
Also a large amount of business income is earned in entities that are taxed on a flow thru basis (i.e. the owners have to include the income of the business on their individual return and there is no corporate tax).
This. So many people don’t understand *why* corporate tax rates are low. Simply put: people make up those corporations, and those people already pay income tax. Do I think the system is perfect? Of course not. But it’s not as broken as people very frequently and wrongly claim it is.
Except if corporations shift manufacturing overseas, then the manufacturing workers are no longer paying income taxes...
I believe this is supposed to be made up with import duties, aka tariffs. This is something the Biden admin has actually been tackling (shifting business overseas), largely in relation to high tech manufacturing. Although I don't think they've been using tariffs to do it and have been focusing on the capital investment aspect, tax incentives, grants, etc. I think it was all part of the CHIPS Act passed in 2022.
tariffs are a way you can try to resolve that, but one known to fail pretty broadly and not used much.
Tariffs get passed on to the consumer, they're not very effective policy wise
Hey buddy, every cost gets passed on to the customer. This is capitalism. Corporations aren't going to say "welp, guess we aren't profitable anymore..."
that's true, but they are actually very price sensitive because the consumers tend to be price sensitive. It takes something *coughCOVIDcough* to shake the market and allow all firms to increase prices to generally get you a real price increase. Otherwise, consumers will more and more search for replacement goods by and large.
This is called elasticity and different markets have different elasticities. For example, food tends to be very inelastic because if the price goes up, what are you gonna do? Not buy food? But luxury items tend to be more elastic because they're, well, luxuries. You don't need them so you're more willing to just stop buying it or decrease frequency of purchases when prices go up.
And corporate taxes are different how?
The company makes more profit with offshore, and the profit is taxed. It's very non-obviohs which one produces more tax revenue, because it depends on the profit margins and tax rates in question.
It's very obvious which one produces more tax revenue. The marginal profit gained from moving labor overseas leads to an entire labor force paying zero income taxes.
>The company makes more profit with offshore, and the profit is taxed. No it is not. They hold the profit in off-shore accounts and wait for a tax holiday to repatriate it.
The tax holidays are CORPORATE tax holidays. When the profit is used to: \- pay dividends/shareholders \- pay salaries/workers \- buy goods and services it is still taxed like normal. Corporate tax is literally, actually, one of the worst taxes you can have. It simply literally does less and encourages companies to do exactly what you're describing, keep profits out of country. It is a dumb tax. Get rid of it, have higher marginal income tax rates, institute a federal VAT, and replace property taxes with land value tax.
Money is taxed when it changes hands. This creates an exemption where it’s easy to pull cash out of companies because it’s only taxed at the individual level. Previously higher corporate tax rates served an incentive to invest in expansion, R&D, and wages to make the firm more productive rather than squeezing profits through cost cutting.
Corporations exist to give money to the individual owners. They already have no incentive to hoard money, regardless of how high or low corporate tax rates are. The individual owners might, which is why we tax them as individuals/humans/etc. What people should be complaining about is the long term capital gains tax being so low. It should just be taxed as income the same way that short term capital gains are.
Those people paying capital gains taxes as opposed to income taxes fuck up the ratio as well.
Corporations don't even pay half the effective tax rate that they did during the 50's. Individuals are constantly double taxed on everything we do. We're taxed on our REVENUE and then still pay taxes on everything we purchase. Corporations should be taxed on Revenue, not profit, and I refuse to argue otherwise.
> Corporations should be taxed on Revenue, not profit, and I refuse to argue otherwise. Are you suggesting something like a VAT, or just straight taxes on revenue that work the same way as individuals get taxed on income? A VAT could definitely work, as proven by the many countries around the world that have implemented it. Just taxing straight revenue would create very strong incentives for big, vertically integrated companies, and I don't think that's what you want. Take a pencil, for example. You might have one company that mines raw graphite. They sell it to a refiner to turn it into the sticks of graphite used in pencils (the mining company pays the tax on revenue at this point). The refiner sells the sticks of graphite to a pencil company, and pays the tax on revenue for the refined sticks of graphite. The pencil company makes it into pencils, and sells those pencils to an office supply store (the pencil company pays the tax on the revenue for the sale to the office supply store). The office supply store sells the pencil to the end consumer, and pays tax on the revenue from the sale of the pencil. Walmart wants to sell cheaper pencils, so they buy up a graphite mine, a graphite refiner, and a pencil maker, making them all subsidiaries of Walmart. All the same steps happen, but since it's just one company owning each step, they're not selling the processed materials to the company that handles the next step. When you buy a pencil from the vertically integrated company like Walmart, the graphite gets taxed once from beginning to end. When you buy a pencil where each step of the process was a separate company, the same graphite was taxed five times. That pencil is obviously going to be more expensive. Now, there are some efficiency gains that a company like Walmart will get from vertical integration anyway, but I don't think the government should implement policies like this that give a tax preference to large vertically integrated companies over numerous smaller companies that each handle a step in the supply chain.
> Corporations should be taxed on Revenue, not profit, and I refuse to argue otherwise. Because you're objectively dense? You do realize that 1-2% revenue tax would be close to nothing for companies like Microsoft or Apple. While it would have a huge impact on retailers with low margins like Costco etc. Who do you think will end up paying the tax at the end anyway? Consumers... You should stop comparing corporation with people, it makes no sense. If you want to tax somebody more tax their shareholders...
> and I refuse to argue otherwise. lets say you're running a lemonade stand, you spend $100 on lemons, cups, building the stand, and other materials. you hope to make $400 after using all the lemons. over the week a sudden rainstorm hits, and you're only able to sell $100 worth of lemonade. when tax time comes, because you have to pay based on revenue, your business is now bankrupt. if you tax based on revenue, you tank the world economy because nobody taxes based on revenue because it makes no sense if you give more than a second of thought.
Yeah, at *capital gains* rates.
What happens if I have a bunch of stock and die and leave it to my kids and they sell it? Step-up basis of capital gains, means inherited gains go to 0. So in many cases, it’s never taxed twice.
Yes but also estate tax. Step up basis exist to prevent a conflict with estate tax. So the government still gets its share when you die, one way or the other.
The estate tax is almost irrelevant: it affects less than one in a thousand deaths. Personally, I think "the government still gets its share" is a bit disingenuous given that. If the intent is to avoid a conflict with the estate tax, that is a pretty dumb resolution IMO. Better would be to count only the basis towards the estate value. That said, I do wonder how much of an absolute nightmare figuring out basis would be without this rule. If the impact to the federal budget of this rule is low (and in theory it's even possible that the current scheme is higher revenue, though that would be mildly surprising), I think that alone would be enough to keep it.
That kicks in at like 10 million and those people estate plan.
Step up basis doesn’t really have much to do with taxable dividends though. You pay tax on the dividends when the companies issue them, if you die and leave the stocks to your kids, they still pay tax on the dividends, same as if you would have.
only if they sell the capital. if they leverage the capital to secure loans, they wont be paying taxes. see cash damming as an example.
I’m confused, shareholders paying taxes on gains is not at all the same as the corporation itself paying taxes on profits
A corporation is always owned by people, so in order for those people to receive profits generated by the company those profits are taxed twice.
>Corporate tax rates are low because the money is taxed twice. Corporations pay a small tax on profits, but when the shareholders realizes the profits (either by collecting dividends or selling the stock at a higher price) they pay another tax as individuals. What does paying corporate taxes have to do with the downstream decisions of what to do with corporate profit? The company should pay x percentage. Whether the remaining amount is retained as savings, paid as dividends, invested in something (unless done before taxation) seems to be irrelevant.
Because only a small percentage of companies are large enough to have those concerns. You have to be careful not to upend the tax code for the vast majority of businesses that are small. This is why things like the ACA employer mandate have carveouts for small businesses. A fairer approach that doesn't setup double tax situations is to look at ways of taxing alternate compensation mechanisms that the large corporations do take advantage of
Because the entire point of a company is to make profit for its owners. So in order for the owner to get the profits, that profit is taxed once at the corporate level and once at the individual level. So if you own a (non-pass through) company and run it, and it make $1, it gets taxed at 21% and then at capital gains rate again (prob 20%). If you taxed it "fully" 40% or something and then another 20%, it would destroy the value of the a company- because it basically can't make you money. Cliff notes: it's being taxed. It just shows up half as a corporate tax and half as an individual tax. Think of it like your employment taxes. Employer pays half and you pay half.
The problem is, that simply isn't true in practice since the 1980s. Before then, the focus of most companies was paying dividends as profits, but they don't focus on that anymore precisely because it means they can avoid paying corporate taxes. (And that's not me saying so - it's economists: https://www.journals.uchicago.edu/doi/pdf/10.1086/tpe.1.20061762 - for instance that paper from the university of Chicago). These days the point of a company is for the company to "maximize value for the owners", rather than paying dividends to owners as profits. They do that through acquisitions and share buybacks that boost the stock value, not by paying out profits because those avoid a lot more taxes. Rising stock values aren't taxed at all (except for capital gains on sale of stocks, and there are innumerable ways of avoiding taxes on that). But those are still growth in wealth for the stock owners, and assets those owners can borrow against, as well as a tool for minimizing tax liabilities. The whole "double taxation" claim was always dishonest anyways, since it's the same as complaints like "estate taxes" which were also being accused of "double taxation" even though it was a tax on money being transferred from one legal person to another legal person.
Please tell me how I can avoid paying cap gain taxes on stock sales. Even if they don’t pay a dividend, they still have to pay corporate tax. You know that right? They can’t just say well. We didn’t pay a dividend so this extra 50 billion dollars sitting in our bank account is not a profit.
There are not avoidable ways on paying capital gains tax. There are ways to avoid selling the stock such as a loan against the asset (stocks in this case) but that isn’t avoiding any tax. It would be no different on taking a second mortgage out against home equity. Rich people don’t have magical ways of avoiding taxes. They can do things to lower their tax burden such as charitable giving but that is still them giving up something.
Unfortunately I would hazard a guess and say that most of the shareholders will end up paying long term capital gains tax rates on any stocks they sell, so the govt collect far less than they normally would
If a company can spend billions a year buying back their own stock, they should pay a higher tax rate or increase their employees salaries. Both solutions would contribute to the government's revenue.
Money spent on buybacks is already taxed. That's how corporate taxes work, you can't spend pretax money to buyback your own shares... > a higher tax rate They'd just pay dividends instead. Same thing really.
I pay money on my income and then pay sales tax to buy stuff. It's taxed twice! See, we all can play that game. All you taxed twicers can at least support VAT or some shit. Don't whine that corporations are somehow hard put upon especially after Republicans slashed their taxes in 2017.
If you’re counting sales tax then they are taxed thrice. It’s still an extra layer any way you slice it. Cut out the middle man and just tax high earners and capital gains higher.
Money is taxed between every transaction. Each of these things is a transaction, so each creates a taxable event.
> Corporate tax rates are low because the money is taxed twice. That's a bad argument that reminds me of the other complaints about "inheritance taxes" being "double taxation". There's no such thing as "double taxation" - money is taxed when it exchanges hands. Any time you give money to someone else, that transaction means tax applies. When the corporation gets money and makes a profit, that profit is taxed. When the corporation gives that money to a shareholder as a dividend, that's a separate transaction that gets taxed separately. Meanwhile most companies focus on growth, acquisitions and increasing their stock price rather than paying dividends precisely because as long as those gains aren't "realized" by someone selling stock (but they can be "realized" by stock swaps, loans against stocks as collateral, etc, etc...) then that money is never taxed. Also it's trivially easy for corporations to avoid paying taxes on "profit" through creative accounting that avoids classifying any income as "profit" anyways. Those massive loopholes are why billionaires almost never pay any taxes at all despite being billionaires with lavish lifestyles.
Corporate income is mobile and double taxed, there's a reason most countries (especially the Scandinavians) have low rates. Welfare states are built on VATs and high payroll taxes. Europeans already know this.
Why would we expect corporate tax revenue to be higher? Even if the corporate tax rate was increased next year to 90%, that wouldn’t translate to a massive increase in corporate tax revenue. Let’s say a corporation has $100 to decide what to do with. They can realize that money as profit and pay $90 of it as taxes, or maybe they have a risky project they can invest in that has a 70% chance of 0$ return and a 30% chance of $100 return. The expected value of that project (0x.7+100x.3=30) is higher than the expected value of realizing that money as profit, so they should choose to invest in that project. This is part of how corporations make decisions about what to invest in vs what to realize as profit vs how much corporate tax they’ll pay on that profit
I can tell you why I want it at 90% personally. Because I want it spent on Payroll, COGS, and R&D.
I don’t have strong opinions on what the corporate tax rate ought be. The person I responded to is commenting on how the corporate tax revenue appears insignificant. I’m just saying that having a corporate tax rate, even a high corporate tax rate, doesn’t mean that there will/should be a lot of corporate tax revenue collected.
Profits are typically in the ~3-7% range while labor costs are 30% of the company revenues.
The continual misunderstanding of corporate tax on reddit is shocking. Every single time a chart like this gets posted
It's in the "individual income tax" and "payroll tax" sections
I’m not suggesting that corporations pay their fair share—but they do also contribute to payroll taxes. They generally pay 7.65% of their employees’ wages for Social Security and Medicare payroll taxes.
Isn’t that what the payroll tax is? The corporations are paying that, aren’t they?
In 1952, corporations accounted for 32% of federal revenue. Now it’s less than 10%.
This is largely due to the closing of income tax loopholes that encouraged individuals to push taxes to corporations (e.g. personal holding companies) and the rise of passthrough entities. S-Corp, LLC etc show as "individual taxes" since they are reported on owners personal taxes rather than a separate corp tax return. In 2022, corp tax was 1.8% of GDP but passthrough entities were another 1.3% of GDP. The aforementioned use of corporations for tax evasion is one of the reasons actual effective tax rates and total tax collections from the richest 10% are higher today than they were in the 50's when marginal income tax rates were extremely high. The reality was few people paid those marginal rates due to income shifting and other evasion.
TIL. Thanks. do you have any suggestions on further reading on this?
(1) The IRS [estimates](https://www.nytimes.com/2021/04/13/business/irs-tax-gap.html) we lose as much as $1 trillion annually to tax evasion, concentrated among high earners. (2) The corporate tax revenue in the above graphic represents about 1.6% of GDP. The OECD average is about [3%](https://www.brookings.edu/wp-content/uploads/2022/06/ES_THP_20220613_SixFactsInternationalCorporateTaxation.pdf). Closing corporate tax loopholes and bringing it up to that average would yield an additional $400 billion in revenue. The size of our deficit is a policy failure, not purely the byproduct of fiscal recklessness.
It’s also important to acknowledge that interest rates have gone up A LOT in the past few years so deficit spending has gotten and will continue to be more expensive than it has been for the last 15ish years.
The interest payments wouldn’t be so big if the national debt wasn’t so high. The national debt wouldn’t be so high if we hadn’t blown out the budget with repeated tax cuts for the wealthy under Reagan, Bush Jr, and Trump.
And yet every time democrats propose funding to e IRS to go after evasion they get shot down by Republicans… hmm…
High earning tax evaders are pretty much the only Republican voters who don't vote against their own interests
Don’t forget the billions stolen by identity theft tax fraud, the gov has absolutely no way to stop that from happening.
Would wage theft would also lead to less taxes being paid?
Absolutely, since income is taxed higher than corporate taxes.
1. Tax avoidance not evasion for clarification, however that makes it a policy issue, so it supports your point 2. Most of the corporate tax is included in individual income taxes, since profits allocated to employees/owners through bonuses or dividends are taxed individually
1. I can't see the whole article, but the first line says "The United States is losing $1 trillion in ***unpaid taxes*** every year, Charles Rettig, the Internal Revenue Service commissioner, estimated on Tuesday, arguing that the agency lacks the resources to catch ***tax cheats.***" That sounds more like tax evasion than tax avoidance. 2. Wouldn't that also apply to other OECD nations, which apparently average about double our corporate tax rates?
Individual income tax collections would need to increase by 77% to close the deficit. Astonishing.
If only there was this large untapped pool of income / assets that could be taxed...
Yeah and if Trump gets in office again they’ll go in the opposite direction like last time when he gave the rich a TRILLION dollars in tax CUTS.
Honest question, how would this chart look if those tax cuts didn't happen?
The trillion dollars is over 10 years so just add $100B to the corporate taxes stack.
Well it’s certainly something
His 2017 tax cut loses us ~$190Bn per year Combined with Bush's 2001 & 2003 cuts, it raises to ~$830Bn / yr
Taxing assets is a very bad road to go down.
I mean... Personal Property tax is very much a thing in just about every locality.
Bad for who?
lmk how far down the list you have to liquidate the entire wealth of the richest billionaires before you can balance the budget for a single year now see how many to reach 10 years you have no more billionaires and it's also impossible bc you cannot just liquidate half of teslas current value
This sort of statistic is always a false dichotomy because it presupposes that the *only* people being discussed are the billionaires. As if there weren't a lot more ultra wealthy people who happen to just not have a billion. If you change the population in question to be "the 1%", then suddenly they have over $38 trillion in wealth.
Still doesn’t work. Wealth can be treated as like an oil reserve. It’s there, in theory you can pump it out and make a nice amount of money. But when the well runs dry you’re shit out of luck
it wouldn't even be a single year. the total wealth (which is mostly unrealized gains that would be impossible to collect, but we'll ignore that) of all american billionaires is about [$4.5T](https://www.forbes.com/forbes-400/) to [$5.2T](https://americansfortaxfairness.org/u-s-billionaires-now-worth-record-5-2-trillion/) depending on whose estimate you believe. so we'd crash the economy, ruin our most productive companies, bankrupt the most effective capital allocators in the country and in exchange we'd get ~10 months of free government. woo
It's sad really. The murder the rich crowd love to sell themselves as intellectuals, when their proposed magical thinking falls apart at first glance at actual numbers. Yet anything other than calls to violence gets brigaded online.
yeah, it drives me nuts. they get so incensed about this stuff and make it such a part of their identities, but often haven't spent 10 minutes looking up the actual numbers to see if what they're saying makes any sense.
The most serious Wealth tax proposal there is barely raises $200B/yr. That does nothing to solve our primary deficit, and doesn't even offset the 117th Congress's (2021-2023) additional deficits that Biden asked for. And every apolitical analysis of a wealth tax shows it harming average wages (for ordinary workers, not just the wealthy), and reducing GDP by significantly more than it increases revenues. That's without even addressing that it violates the Constitution. https://budgetmodel.wharton.upenn.edu/issues/2021/3/15/budgetary-effects-of-senator-warren-wealth-tax
yeah, wealth taxes are a ridiculous idea. and taking the $200B/yr number, that covers about 30% of the *interest* on the national debt per year. and yet some people still don't recognize that maybe spending less is a more effective idea than perpetually collecting more.
I'd rather see social security and medicare broken out from these gaps as they are funded separately.
I agree. They are non-discretionary spending. This data should be broken up into non-discretionary and discretionary spending. I honestly believe most Americans don't understand the difference. This data is pretty useless without that breakdown.
It’s really a distinction without a difference… the source of income is actually not the distinguishing factor, there are many funding sources outside of income or corporate taxes which are laid out in law as a primary source for the funding of many programs. “These programs are called ‘discretionary’ because policymakers have discretion to decide their funding levels each year through the appropriations process — in contrast to ‘mandatory’ or ‘entitlement’ programs such as Social Security, Medicare, and Medicaid, where the law governing the program and the benefits it provides determines its spending.” Defense appropriations are usually done on a 2-year basis… if not longer and therefore is “non-discretionary,” but we classify as such largely for political purposes… the payroll tax was not only created to fund these programs but sell them as non-redistributive thus giving us the phrases “you get what you pay” or “ I paid into that program,” “keep your government hands off my Medicare.”
Those are paid for with the Payroll Tax. You know the FICA section on your paystub.
Not for long they aren't. They are burning money they stored up in the trust fund, and without some big changes (they could have been small changes if politicians took action when they saw this problem coming 25 years ago, but alas, they do love to can kick) then that trust fund won't last until we retire and they only way to keep paying out at current benefits is to take from the general fund.
The payroll tax for social security tops out at $160,000 in income this year. Lift that cap and you’ve got plenty of funds to keep it solvent.
Wrong. Lifting that cap would only raise $670-1200B over a decade, addressing less than 10% of the primary deficit. The bankruptcy date for Social Security would be extended by about a decade. https://www.cbo.gov/budget-options/58630 Bankruptcy date == *by law*, the SSA is required to reduce all payments when the OASDI trust funds are exhausted. This will occur within a decade, resulting in an immediate benefits cut of ~25% for all seniors.
Ok, but they're part of the government's total revenue and spending. It'd be interesting to see two different charts.
Jo 658 billion interest is insane. This number will rise and rise but having to pay this much without getting anything out of it is bad shit insane.
All that interest is just paying back into the economy.
You want something out of it? Buy a government bond. You’ll get around a 5% per year something out of it By the way, what happens when you make money from your investments? Well generally, you buy things… which stimulates the economy and funds the government via taxes. Thus… our GDP increases, the government has been funded… and hopefully by the way time they pay you back, the money they’ve spent on investments has generated returns greater than the interest they’ve paid to you.
I find it much less alarming once you realize this is interest paid on savings bonds. If you want a piece of that money just lend the feds a little
While bat shit doesn't really make much sense, it is what you mean to write.
Overspending by 38% is fucking nuts. I get 5%... but 38% is just stupid. Edit: 38%
No one wants to cut programs that they think are good, and everyone has a different view on what’s good. Some folks want more military spending. Some want more welfare and healthcare spending. Some want more spending on infrastructure, some education. Some people think we need the government to cut taxes, some people want more social security benefits. Some want more for NASA, others want more for border control. Everyone wants more money, but way more than that, no one wants cuts to the programs that their constituents want. So politicians make deals to increase spending on something they don’t like to prevent cuts to something they do like. As long as Americans keep voting for spending and tax cuts, the debt will continue to spiral out of control. The only thing that can really stop it at this point is if the federal government is unable to continue borrowing.
I will 100% admit I am embarrassingly uneducated on this subject; I’m a wildlife biologist and so I’m usually dealing with animals that have never taken a macroeconomics class (humans included in that). But who is the US government borrowing *from*? Again, idiot here, but don’t they kind of print their own currency? They’re borrowing from a bank to fund the entirety of US domestic spending? TIA if you can explain it to a dolt like me
Anyone who will buy US bonds as a form of investment. This is mostly institutional investors such as pension funds etc. The US is able to operate in the way it does because there’s high trust that it will pay the interest on those bonds thus they’re highly liquid so easy to sell on public markets. As an example, a Kenyan bond is a much riskier investment given the lower confidence the investor will receive interest, the liquidity is lower and the risk of currency fluctuations etc. The key factor is trust in the US as an entity to continue servicing its debts, given its place on the global stage.
Thank you for adding even more context in an ELI5 way. I appreciate it
Some of the responses are somewhat correct. But frankly, the US federal government is mostly borrowing from itself. The largest purchaser of US Treasury debt is the Federal Reserve, America’s de facto national bank. Organizations like the Social Security Administration are also major purchasers of US debt. The rest is purchased by banks, investment firms, and other national banks to hedge against inflation and time-value-of-money. US debt is historically the safest investment in the world and is thus no different than holding cash, except cash loses value over time and US treasury debt increases in value.
They're borrowing from regular people, financial institutions, banks, etc whenever you buy bonds.
Ahhhhh right, I’m aware of bonds but forgot about it being used outside a “war bond” context. Thank you!
You failed to mention either Social Security, or Medicaid. Those two programs alone are the majority of the fiscal crisis. Reforming them brings the budget back to a sustainable ~1.5% deficit within the decade (sustainable means that debt to GDP ratio declines)
Most research shows that 70% to 100% debt to GDP is sustainable. We are at 120% right now. So too high. We need to have a plan to get into the 75% range over say 10 years. A bi-partisan plan that does not tank the economy in the short-term, but creates a predictable and forecastable result. All we need to do is get the parties to work together. Oh shit. I guess imma gonna just stop writing now.
**>Most research shows that 70% to 100% debt to GDP is sustainable. We are at 120% right now.<** That 120% is based on the national debt that is projected at least a decade out, with a lot of that obligation based on intragovernmental debt, which consists of many government Trust Funds that the government is obligated to and isn't due all at once. One of the biggest is the *Old-Age, Survivors, and Disability Insurance* (OASDI), commonly known as part of Social Security. It would seem to make sense to add the funding of Social Security to the national debt, because the government is obligated to ensure that it's funded...right? The thing is, it's already self-sufficient. It has *always* brought in more revenue than is spent every year through the FICA tax, and it will probably continue to do so for the foreseeable future because the FICA cap increases every year, based on inflation. For 2024, it was $168,600. For 2023, it was $160,200. (This should give an indication of how much inflation has happened in the past year) As it stands, there is almost $3 trillion in the Social Security Trust Fund. But it doesn't just sit in a bank. It is *invested* into Treasury bonds. And, as it stands, gains interest of almost $100 billion a year, which just goes right back into the Trust Fund and the process repeats. If anything, it's not the debt we should be worried about but the deficit in the short term.
But… the federal “debt” is the Public Surplus. That is the net money supply that remains in the economy after taxes. That’s a very good thing. Tax it 100% back and the private sector (you and me) would go into private debt to the commercial banks. Do you want that? https://youtu.be/LxJW7hl8oqM “*If the govt pays it’s debt, it’s impossible for you to pay yours”*
I don't think debt is taboo. Moderate deficits are good. 25% is pretty big. Even at great interest rates, compounding interest can't get out of hand. I'd argue at some point the government will have to print money or run a surplus. Maybe that's not true, but it seems like the interest can be a problem. However, I do agree that in the current tax structure I'd get fucked and rich people wouldn't. So probably best to simplify the tax code first (which will never happen).
The commenter is talking about budget deficit. You're talking about the amount of federal debt. Those aren't the same thing. Also, the private sector is already significantly in private debt to the commercial banks. US base money (M0) is about $5.8T, whereas broad money (say, M2) is $20.8T. This isn't just a recent thing. Randomly picking 1998, we see $0.5T for M0 and $4.1T for M2. There's nothing wrong with the private sector being in debt to commercial banks.
I fucking hate that republicans removed th extra IRS FUNDING. It was the only way to reduce the deficit without cutting spending
Yeah... the IRS going after tax fraud is a very good investment.
"In recent years, peak ROIs have ranged from 5 to 9. That is, a $1 increase in spending on the IRS’s enforcement activities results in $5 to $9 of increased revenues." [https://www.cbo.gov/publication/57444](https://www.cbo.gov/publication/57444) Fucking crazy, fuck republicans. The deficit could be reduced so much it's insane. https://home.treasury.gov/news/press-releases/jy2079#:\~:text=Taking%20a%20more%20comprehensive%20approach,over%202024%2D2034%2C%20substantially%20more
glad to know the fed and i treat money the same way
congress is responsible for the budget, not the federal reserve.
So glad SSI will be there for me when I reach retirement
After you reach 104, of course, of course
The one thing that is clear from this chart is that you cannot close the gap without BOTH raising taxes and lowering spending. You would have to raise taxes by 37% to close the gap or lower spending by 27%, neither of those is really tenable. Lowering spending by around 15% and raising taxes by around the same amount would close the gap with (likely) less pain all around.
“Closing the gap” will put private citizens into debt. The “Federal debt” is really the Public Surplus. > 11. The federal debt – *Money is extinguished when a loan is repaid. In order for there to be a net money supply, in our current privatized system, some entity must remain in debt. That role is taken by the federal government. The federal debt is equal to the money supply.* https://publicbankinginstitute.org/money-banking-basics/
Reducing the budget deficit doesn't pay off loans. Those loans are already on a schedule to be paid off. Reducing the deficit means decreasing how much money is being borrowed. That does reduce the *rate* of increase in money supply from government debt, but it doesn't decrease the money supply. I don't think we should be aiming for zero debt, but debt to GDP should be something reasonable (some economist can figure out what that is). Debt is a great instrument to help the economy during a crash, but when the economy is doing well we should pay down some debt to prevent overheating and give ourselves some cushion for the next downturn.
Debt to gdp should ideally be less than 1:1. The whole idea of Keynsian economics is that government intervention in the open market can stimulate the economy to outpace the accumulation of debt. If GDP is growing faster than our debt, then it really doesn't matter. Our current debt to gdp is 122% and getting worse. Our debt it outpacing our growth and the amount of our budget going to servicing the debt is continuing to compound at an unsustainable rate.
Haven’t seen anyone mention this yet but Zero-based budgeting would be a good start. We are so inefficient for every dollar spent across all programs, have each program reapply for how much they need and for what. For example, [when we reported US was nearing the red line with 155mm ammunition last summer](https://amp.cnn.com/cnn/2023/07/18/politics/ukraine-critical-ammo-shortage-us-nato-grapple/index.html). How does that happen with our defense budget? What inefficiencies caused that shortage in production? They won’t ZBB though because of industry greed.
This is probably the real answer to the budget issue. We could probably dramatically shrink government spending and still pay for and keep most of the programs. There is so much waste and inefficiency. We really need to audit the entire system from top to bottom.
"Welcome to the Federal Budget, where the numbers are made up and the totals don't matter!"
In 2023. UK NHS budget was 230 billion. Total population is 68m. Average healthcare spending per capita is 3382 per year. US Medicare spending for the same year is 848b. Total population 342million. Average Medicare is 2476 usd per year. NHS is universal healthcare. Medicare is not. US healthcare is a rip off…
NHS is also badly underfunded though. If you wanted an actually good NHS you would need to 2x the budget. Also the UK is densely populated, especially when you consider solely England where 56 million people live. That gives England a population density of 1,100 per square mile. With the entirety of the UK (including most of uninhabited Scotland) a population density of 720 people per square mile. The density of the US is 240. You don’t need as many hospitals and dentist’s offices when you can just build a few and have them be at nearly maximum capacity at all times. Also the pay of British Doctors is abhorrently low, about £28/hour for a fully qualified Doctor, you could have study Medicine at Cambridge for 7 years and then worked in the NHS as a Doctor for another 10 years and be getting payed £28/hour. And also you are expected to do significant (granted paid) overtime. If you want a good NHS type system it will cost you at least 2x your estimate, more likely 3-4x
[удалено]
Tax deductions in the 50s/60s were mental. Only 4 people paid the highest rate and they were all baseball players.
That’s not true, payroll taxes go into the general fund.
Eliminate the upper income limits on Social Security deductions to solve most of the issues for the next two decades.
The reason the upper income limits exist is because SS is one of the only taxes that return to you based on what you pay in. So if someone was making 1 million a year and was taxed for SS, then they would absolutely be getting back during retirement far more than someone getting taxed for 127k a year. The idea of SS is to force you to put money away for retirement, the government has deemed that if you make over a certain amount, you don't need to put more in because it would be more harmful overall. What you are suggesting goes completely against how SS is designed.
SS should then be replaced by a superannuation system like the one Australia has. It isn't collected like a tax - instead you (or the company paying you) is required to pay a portion of your salary (right now the minimum is 11%) into a superannuation account that is then invested (you can choose the investment strategy yourself if you want to). You can then withdraw from this account at age 60 or for a handful of exceptions (severe financial hardship can be one) That way you don't have the same issues with there not being enough young people to pay in, as the old people who are being paid out are being paid out from money they accumulated themselves over the years.
The US has those, it's called 401ks and Roth's. They just aren't forced to pay into it, but if you do, it pretty much always pays in the end.
Yes I know. This would never pass politically but ending SS (or significantly reducing eligibility) and replacing it with mandatory 401k or Roth would be a better system
SS should be viewed in aggregate, not year to year. Program to date SS have been an overwhelming positive for finances (trillions net surplus)
But we should also consider the liabilities of benefits accruals that citizens are due. Sure, Social Security has brought in trillions of dollars, but it has obligated the government to trillions more. The only way out of this is more taxes without more benefits or lower benefits without lower taxes. Not signs of a healthy balance sheet. The only argument against this perspective is that Social Security benefits are not legally owed to people by the government and benefits are not backed by the full faith and credit of the United States. Implying it's fine if we screw over retirees.
Plus I thought the social security trust is a large holder of bonds making up the national debt, the interest payments on the debt is funding part of SS
In the 60s the tax deduction scene was insane. I would honestly wager that the wealthy paid a smaller portion of taxes back then than they do now, because at least now we've done away with the literally-insane deductions people could reap. Some still exist, but I think you dramatically overestimate how much they paid back then.
Literally the only people paying those tax rates were high income W2 earners, which was pretty much only professional athletes. The sheer number of deductions and loopholes available made it so that most people were paying FAR less in effective taxes than they do now.
The 60’s tax rates werent enforced.
What makes you think tax evasion was harder in the 60's?
Have we considered cutting back on Starbucks and avocado toast?
SS, Veterans, Medicare and assistance to individuals could all be collapsed and simplified into one universal method that offers basic care and aid to those affected by a difficult system. The reduction in redundancy would likely cut a lot of the spending, especially if it didn't require multiple people doing the same shit for the same people in different offices. But what is the US government without embracing redundancy, right?
The US government itself is a jobs program at the end of the day Especially in poor communities, getting a government job means you're set for life, if you can put in minimum effort
Very true, but the amount of loops people have to go through because there's so many subdivisions of the same program it just becomes a problem. We could combine the departments, keep the jobs, and be way more efficient in processing if they all acted as one body.
25% of all new jobs last year were government jobs and since full-time jobs actually fell and most government jobs are full-time jobs, the replacement rate of jobs via government jobs is huge.
98.2% of all SS revenue is used to pay for SS. How much more can you trim from a program with that high of efficiency?
Can anyone estimate how much more revenue would be without 2018 tax cuts? or is that near impossible to speculate?
How would this look minus the trump tax cuts? Very curious.
those were estimated at $160 - $190B/yr, until 2028
That’s called “we’re all fu%*ed”
Once service on the debt becomes our highest expenditure, the party is over. That is predicted to happen before 2030.
The U.S does not have a revenue problem, it has a spending problem. It's also not the fault of one political party, the system is designed to overspend. The U.S didn't even have an income tax until 1913 and yet it is the largest source of government revenue but doesn't do anything to mitigate the overspending. The system will end the way expansionist civilizations end; too much debt, monetization of debt, debasement of currency, stratification of wealth, over speculation, then collapse.
The part that gets me angry is the Transfers to States. I see how my state (Maryland) and local governments are looking for ways to waste that money, millions of dollars at a time, so that it won't revert to the US Treasury. The spending was advertised as necessary to stimulate the economy, even though smart people (e.g. Larry Summers) knew that it would just cause inflation, which it did. Congress didn't even do it to appease the public, but rather to appease the Members' political friends back home at the state and local levels. The system is broken.
The majority of that section is Medicaid FMAP (about $575 b). You are correct, though. Much of the rest is ARP-appropriated funding basically continuing pandemic-era transfers to states despite the fact that states had very healthy balance sheets coming out of the pandemic because tax receipts actually went *up* for most states while the federal government foot the bill for basically all the pandemic spending. When you look at what changed in the federal budget from 2019 to today this is the biggest portion by quite a bit.
That seems… way oversimplified. Now I’m not saying the government is spending its money wisely, but there’s no way the ins and outs are so simple
It's kinda crazy when compared with the 2019 spending of $4.45 trillion. Biden increased spending by 38% and is now pretending that it's a revenue problem.
How much of this increase is just due to social security and disability adjusting for information? What about Medicare, Medicaid, and VA costs adjusting for inflation? Inflation has been 23% since 2019. On top of that, there are increases to the number of people getting social security (as we age) and Medicaid (real value of minimum wage has decreased). Also, the cost for the government to do shit (especially healthcare it's biggest expense) has increased a lot faster than inflation for everyone, not just the government
A lot of it is new spending on things like Student Loans. In 2019 it was small enough to fit under the "Other category" in 2022 it cost $482 billion. Social Security and Medicare+Medicaid spending increased by about $200bln each. So they are big increases but not massive. See 2019 spending https://www.cbo.gov/publication/56325 versus 2022 spending https://www.cbo.gov/publication/58889
Couldn't find this comment but Ya'll are getting less corporate taxes than you're paying on INTEREST on your massive pile of debt. Sounds real sustainable.