Which Tax Basis is Best and Why?

[D H]

The government still protects the adjacent/surrounding homes that probably are not vacation homes. It's not like the "rich" people use the government as private security for their vacation homes or whatever other property they own. The security/police/military is already in place and would exist regardless of whether or not the "rich" had the extra home or other property. So I don't see how they benefit more.

On that basis, I hereby petition my local government to stop levying property taxes on me (at least the portion that goes to the police department) because the security/police is already in place and would exist regardless of whether or not I personally pay my share of that protection.

 

[CRGreathouse]

I agree the definition of rich is quite subjective. Admittedly I'm not familiar with what Victorian standards were like, I imagine if one were to adjust the value of money for inflation, etc. then it wouldn't be too much of a difference in the terms.

Well, for starters, the Victorians didn't have computers, cars, air conditioning, vaccines, or well-insulated houses. In modern America a person can own a car and live in an insulated apartment with heat and air conditioning while still falling below the poverty line.

The government still protects the adjacent/surrounding homes that probably are not vacation homes. It's not like the "rich" people use the government as private security for their vacation homes or whatever other property they own. The security/police/military is already in place and would exist regardless of whether or not the "rich" had the extra home or other property. So I don't see how they benefit more.

I agree that the security would exist without those homes, but the rich still get that benefit (even if it's totally unintentional).

Just out of curiosity, how did you form that opinion? I seem to hear this statement a lot but I've never really heard a reasonable explanation as to why other than that's just the way it is.

First of all, let me state that this is not a bad state of affairs. If a nonrich person pays $8,000 in taxes and gets $12,000 in government benefits while a rich person pays $100,000 in taxes and gets $10,00 in benefits, that's a pretty unfair situation. Saying that the rich person in this example gets more than $12,000 in benefits (perhaps only $13,000) doesn't seem like much to ask. I'm not saying that they get more proportional benefit -- in fact I feel that this is false.

• Police protection is determined in part by location: better areas get better police protection because local policing is paid for by local taxes. Rich people live in better areas.
• Rich people have more to lose. If the government shuts down and a mob destroys my house, I'm out $**,000. If a mob destroys a rich person's mansion, they're out $*,*00,000.
• Rich people get indirect benefits. If you own stock in any company that uses US infrastructure (that would be pretty much every US company) you benefit from that company's gain.

 

[stewartcs]

On that basis, I hereby petition my local government to stop levying property taxes on me (at least the portion that goes to the police department) because the security/police is already in place and would exist regardless of whether or not I personally pay my share of that protection.

I didn't say that they shouldn't pay their share, I said they shouldn't pay more than their share. They already contribute to the local government's police force (just like everyone else in the neighborhood) with the local taxes they pay on their local property whether it is a vacation home or their primary residence. For example, if they own two homes in two different areas, they will pay two property taxes thus contributing to the system proportionately. My point is that they shouldn't have to pay a higher effective percentage simply because they have two homes. This argument extends to income tax as well.

Sorry DH you still have to pay your taxes!

CS

 

[stewartcs]

I agree that the security would exist without those homes, but the rich still get that benefit (even if it's totally unintentional).

And so do the non-rich.

First of all, let me state that this is not a bad state of affairs. If a nonrich person pays $8,000 in taxes and gets $12,000 in government benefits while a rich person pays $100,000 in taxes and gets $10,00 in benefits, that's a pretty unfair situation. Saying that the rich person in this example gets more than $12,000 in benefits (perhaps only $13,000) doesn't seem like much to ask. I'm not saying that they get more proportional benefit -- in fact I feel that this is false.

That seems pretty unfair for the guy who pays 100,000 in taxes and only gets 13,000 of benefit when the other guy pays 8,000 and gets 12,000.

13,000/100,000 = 0.13

compared to

12,000/8,000 = 1.5

• Police protection is determined in part by location: better areas get better police protection because local policing is paid for by local taxes. Rich people live in better areas.
• Rich people have more to lose. If the government shuts down and a mob destroys my house, I'm out $**,000. If a mob destroys a rich person's mansion, they're out $*,*00,000.
• Rich people get indirect benefits. If you own stock in any company that uses US infrastructure (that would be pretty much every US company) you benefit from that company's gain.

• The rich people in the better areas are paying higher property tax to pay for the better protection.
  
• Although I think the second point is a bit extreme, I can see a somewhat valid argument here. However, one could argue if the government shuts down and no police force were available (no one pays any tax then and it's a free-for-all) one could defend one's property at any cost (i.e. shoot the mob members). But assuming we are talking about a functioning government I don't think the argument works.
  
• The company pays taxes too. An there are taxes on capital gains so there's no free lunch there either.

CS

 

[CRGreathouse]

So, stewartcs, you agree with me that the rich get more benefit, but less proportional benefit, than the middle class.

 

[stewartcs]

So, stewartcs, you agree with me that the rich get more benefit, but less proportional benefit, than the middle class.

Uh, I don't quite understand. How do they get more benefit yet less proportional benefit?

CS

 

[CRGreathouse]

Uh, I don't quite understand. How do they get more benefit yet less proportional benefit?

Let R be rich, N be nonrich, DollarBenefit(x) be the dollars of gross benefit received by x, and DollarTax be the total tax dollars paid by x. My claim:

1. DollarBenefit(R) > DollarBenefit(N)
2. DollarBenefit(R)/DollarTax(R) < DollarBenefit(N)/DollarTax(N)
3. DollarBenefit(R) - DollarTax(R) ? DollarBenefit(N) - DollarTax(N)

For #1, I say "the average rich person gets more gross benefit" (post #68). For #2, I say the average rich person gets "less proportional benefit, than the middle class" (post #75). #3 is net benefit, which I currently have no opinion on. My example in post #72 has greater net benefit to the nonrich person, but I don't know what relation I expect to commonly hold.

 

[stewartcs]

Let R be rich, N be nonrich, DollarBenefit(x) be the dollars of gross benefit received by x, and DollarTax be the total tax dollars paid by x. My claim:

1. DollarBenefit(R) > DollarBenefit(N)
2. DollarBenefit(R)/DollarTax(R) < DollarBenefit(N)/DollarTax(N)
3. DollarBenefit(R) - DollarTax(R) ? DollarBenefit(N) - DollarTax(N)

For #1, I say "the average rich person gets more gross benefit" (post #68). For #2, I say the average rich person gets "less proportional benefit, than the middle class" (post #75). #3 is net benefit, which I currently have no opinion on. My example in post #72 has greater net benefit to the nonrich person, but I don't know what relation I expect to commonly hold.

Yes I agree that this is true of our current system, but the proportion is what really counts in my opinion. What this infers, however, is that R is getting less effective benefit than N. Which doesn't seem fair to me (i.e. they're not getting back their fair share based on what they pay into the system).

As far as #3 goes, I imagine that R > N in order to get the proportions correct (which again seems like the fairest option to me). Not sure though.

CS

 

[CRGreathouse]

Yes I agree that this is true of our current system, but the proportion is what really counts in my opinion. What this infers, however, is that R is getting less effective benefit than N. Which doesn't seem fair to me (i.e. they're not getting back their fair share based on what they pay into the system).

So you think that a good ethical basis for taxation is that
* All taxpayers get a similar return on their taxes ('ROI')
* The total amount of the tax maximizes societal wealth, subject to #1

Standard disclaimer applies: please correct any misunderstanding of mine.

 

[stewartcs]

So you think that a good ethical basis for taxation is that
* All taxpayers get a similar return on their taxes ('ROI')
* The total amount of the tax maximizes societal wealth, subject to #1

Standard disclaimer applies: please correct any misunderstanding of mine.

Yes that sounds correct.

CS

 

[baywax]

The military (and police) protect the US as a whole, regardless of how much each individual person makes. I don't see a benefit for the rich here either. I mean, we all live in the same place that needs protecting don't we (i.e. the US)?

CS

Yes but there is the potential, in a state that doesn't educate or recreate its population with the taxes they pay, for violence directed against the larger homes and properties and there are robberies in rich commercial areas that demand police attention There is white collar crime among the rich that is expensively investigated (we can hope) and a slew of other offences being committed by the spoiled brats of the rich. This places quite a burden on the tax dollars that would normally be spent simply patrolling a neighbourhood or other middle class, low income class duty.

 

[baywax]

So you think that a good ethical basis for taxation is that
* All taxpayers get a similar return on their taxes ('ROI')
* The total amount of the tax maximizes societal wealth, subject to #1

Standard disclaimer applies: please correct any misunderstanding of mine.

What is being missed is where that money the "R" has came from. Let's just use one factor to illustrate what I mean... the R has 50 NRs working for them. The 50 NRs have just gone thorugh 10 - 12 years of free education... the R is benefitting directly from this schooling through the NRs abilities and training picked up, at the Tax Payers expense, in school. There is a responsibility that the R should share for these dollars that went into the training and shaping of Rs employees. There is the infrastructure that they get to work in or on. And there are a slew of other governmental services that have supported these people up until they were able to apply their talents to R's business. Most of these expenses have been paid by property tax, income tax and sales taxes imposed on the parents of these NR employees... but that doesn't mean the R Employer should not acknowledge this benefit by paying a form of taxation... that may or may not seem higher, proportionately, to the percentage a mom and pop operation might pay.

 

[stewartcs]

Yes but there is the potential, in a state that doesn't educate or recreate its population with the taxes they pay, for violence directed against the larger homes and properties and there are robberies in rich commercial areas that demand police attention There is white collar crime among the rich that is expensively investigated (we can hope) and a slew of other offences being committed by the spoiled brats of the rich. This places quite a burden on the tax dollars that would normally be spent simply patrolling a neighbourhood or other middle class, low income class duty.

So your argument is that the rich should pay more taxes since the non-rich will probably attack their property thus causing the police to use more of their resources to defend the rich's property? In other words the rich would have to pay more taxes to prevent the non-rich from committing crimes against them.

What about the delinquents of the non-rich who are out attacking the rich? Surely there are more of those in the general population. Hence, the police would use more of their resources controlling the non-rich delinquents. Based on that logic, the poor should pay more taxes for policing since their delinquent children are out causing the problem...not the other way around.

CS

 

[stewartcs]

What is being missed is where that money the "R" has came from. Let's just use one factor to illustrate what I mean... the R has 50 NRs working for them. The 50 NRs have just gone thorugh 10 - 12 years of free education... the R is benefitting directly from this schooling through the NRs abilities and training picked up, at the Tax Payers expense, in school. There is a responsibility that the R should share for these dollars that went into the training and shaping of Rs employees. There is the infrastructure that they get to work in or on. And there are a slew of other governmental services that have supported these people up until they were able to apply their talents to R's business. Most of these expenses have been paid by property tax, income tax and sales taxes imposed on the parents of these NR employees... but that doesn't mean the R Employer should not acknowledge this benefit by paying a form of taxation... that may or may not seem higher, proportionately, to the percentage a mom and pop operation might pay.

Both R and NR benefit directly from the education of NR. R pays his fair share of tax (proportionately) along the way too...not just NR's parents. R will pay more $'s in tax (not percentage but $'s) than NR's parents since R has a business.

CS

 

[baywax]

Both R and NR benefit directly from the education of NR. R pays his fair share of tax (proportionately) along the way too...not just NR's parents. R will pay more $'s in tax (not percentage but $'s) than NR's parents since R has a business.

CS

Yes, and that's because R is benefiting from the Government system more than the parents or the offspring... by way of profit $ made through the (we can hope again) efficient handling of his affairs by educated NR employees.

What about the delinquents of the non-rich who are out attacking the rich? Surely there are more of those in the general population. Hence, the police would use more of their resources controlling the non-rich delinquents. Based on that logic, the poor should pay more taxes for policing since their delinquent children are out causing the problem...not the other way around.

Of course... the cost of incarcerating or rehabilitating or re-educating the "delinquents" who revolt against the rich in the form of robbery or worse is a direct cause of the disparity between the R and NR... the responsibility to protect the R falls squarely in the lap of the R... and that, I believe, is the American Way.

 

[stewartcs]

Yes, and that's because R is benefiting from the Government system more than the parents or the offspring... by way of profit $ made through the (we can hope again) efficient handling of his affairs by educated NR employees.

R is not benefiting more than NR. Yes, R makes more $'s than NR in the form of a profit. However, R also pays more in taxes so the proportion of benefit to tax is the same (presuming they are taxed at the same rate).

Of course... the cost of incarcerating or rehabilitating or re-educating the "delinquents" who revolt against the rich in the form of robbery or worse is a direct cause of the disparity between the R and NR...

The cost of incarcerating may contribute some to the disparity, but surely it is not the most dominant cause.

...the responsibility to protect the R falls squarely in the lap of the R... and that, I believe, is the American Way.

Again, R pays his proportion for the protection. R shouldn't have to pay more than his proportion.

CS

 

[baywax]

R is not benefiting more than NR. Yes, R makes more $'s than NR in the form of a profit. However, R also pays more in taxes so the proportion of benefit to tax is the same (presuming they are taxed at the same rate).

R benefits from the ability to loop out of taxes by hiring accountants that are good at it. The $ R should be paying to the country goes to the CA.

The cost of incarcerating may contribute some to the disparity, but surely it is not the most dominant cause.

The disparity is caused by the R (after the CA's handy work) paying about as much as the NR... so the R is R'er and the NR is at status quo or Poor'er.

Again, R pays his proportion for the protection. R shouldn't have to pay more than his proportion.

Delinquents are not ran-sacking a modest home. They are after an affluent symbol of oppression and disparity. The R demands more protection and should pay for it. And often do hire private security. But their powers are limited... no private Judges... no private police station... but, I hear there are people making money running prisons in the US, so, the more delinquents (or representations of such)... the better... in their eyes.

 

[CRGreathouse]

So you think that a good ethical basis for taxation is that
* All taxpayers get a similar return on their taxes ('ROI')
* The total amount of the tax maximizes societal wealth, subject to #1

Standard disclaimer applies: please correct any misunderstanding of mine.

What is being missed is where that money the "R" has came from. Let's just use one factor to illustrate what I mean... the R has 50 NRs working for them. The 50 NRs have just gone thorugh 10 - 12 years of free education... the R is benefitting directly from this schooling through the NRs abilities and training picked up, at the Tax Payers expense, in school. There is a responsibility that the R should share for these dollars that went into the training and shaping of Rs employees. There is the infrastructure that they get to work in or on. And there are a slew of other governmental services that have supported these people up until they were able to apply their talents to R's business. Most of these expenses have been paid by property tax, income tax and sales taxes imposed on the parents of these NR employees... but that doesn't mean the R Employer should not acknowledge this benefit by paying a form of taxation... that may or may not seem higher, proportionately, to the percentage a mom and pop operation might pay.

A few points, if I may?

First, remember that this is not my idea but my summary of stewartcs's position. So I'm not missing anything.

Second, this is a summary of an ethical position. I don't think there is anything missing from it in that sense: it's self-consistent. I think that what you mean is 'don't jump from these principles to tax system X without considering ___.'.

Third, not all rich people own or run companies. Under these ethics, it would be wrong to tax a rich person who is not running a company (and doesn't own stock, etc.) for the benefit to 'their workers'.

Fourth, I'm concerned about the impact of a tax like that. Suppose people pay a tax for every domestic employee working for them (if you own 1% of the stock of a company employing a thousand people, you pay the rate for 10 people). Wouldn't this discourage stockholding (generally a negative for the economy) and encourage companies to substitute away from domestic labor to foreign labor or automation?

Fifth, I wonder about how much a tax like that would have its cost passed along through higher prices. (I don't know; I can't think of a good model right now.)

 

[CRGreathouse]

R benefits from the ability to loop out of taxes by hiring accountants that are good at it. The $ R should be paying to the country goes to the CA.

Of course as we are discussing a new system of taxation, mightn't it be one that is less susceptible to manipulation?

 

[baywax]

A few points, if I may?

First, remember that this is not my idea but my summary of stewartcs's position. So I'm not missing anything.

Second, this is a summary of an ethical position. I don't think there is anything missing from it in that sense: it's self-consistent. I think that what you mean is 'don't jump from these principles to tax system X without considering ___.'.

Third, not all rich people own or run companies. Under these ethics, it would be wrong to tax a rich person who is not running a company (and doesn't own stock, etc.) for the benefit to 'their workers'.

Fourth, I'm concerned about the impact of a tax like that. Suppose people pay a tax for every domestic employee working for them (if you own 1% of the stock of a company employing a thousand people, you pay the rate for 10 people). Wouldn't this discourage stockholding (generally a negative for the economy) and encourage companies to substitute away from domestic labor to foreign labor or automation?

Fifth, I wonder about how much a tax like that would have its cost passed along through higher prices. (I don't know; I can't think of a good model right now.)

Yes, sorry to have put it less eloquently. But I think we have to excavate the source of a person's wealth in order to tax them fairly. One does not have 4 billion dollars in the mattress out of the thin blue sky. There are inheritances, stock portfolios, off shore interests, and tonnes of other factors that I have no idea how to tax or if they need taxing. I just speculate that the more money a person has the more government services are in use either helping to generate that money, protect it, bail it out etc... It takes major backtracking to see what helped do what where etc...

 

[baywax]

Of course as we are discussing a new system of taxation, mightn't it be one that is less susceptible to manipulation?

Yes, we could tax the living bejeebus out of CAs...! (Just kidding... scaring the accountants on Halloween!)

 

[CRGreathouse]

Yes, sorry to have put it less eloquently. But I think we have to excavate the source of a person's wealth in order to tax them fairly. One does not have 4 billion dollars in the mattress out of the thin blue sky. There are inheritances, stock portfolios, off shore interests, and tonnes of other factors that I have no idea how to tax or if they need taxing. I just speculate that the more money a person has the more government services are in use either helping to generate that money, protect it, bail it out etc... It takes major backtracking to see what helped do what where etc...

So we elect you as President of the United States and give your lackies plenty of seats in the Senate and House. How do you change the tax structure? And more importantly, why?

 

[D H]

Yes, sorry to have put it less eloquently. But I think we have to excavate the source of a person's wealth in order to tax them fairly. One does not have 4 billion dollars in the mattress out of the thin blue sky. There are inheritances, stock portfolios, off shore interests, and tonnes of other factors that I have no idea how to tax or if they need taxing. I just speculate that the more money a person has the more government services are in use either helping to generate that money, protect it, bail it out etc... It takes major backtracking to see what helped do what where etc...

From the Washington Post, federal budget outlays for 2007:

Explain how the rich can possibly receive more benefits out of proportion to their tax payments when 60% or more of the federal budget goes to the middle class and the poor.

 

[CRGreathouse]

Explain how the rich can possibly receive more benefits out of proportion to their tax payments when 60% or more of the federal budget goes to the middle class and the poor.

Is anyone arguing that rich get more than proportional return on tax?

Also, a minor point: social security is from and to the middle class. The rich don't particularly fund the system, nor do they receive any substantial benefit from it. For this discussion it's probably best to ignore it.

 

[baywax]

So we elect you as President of the United States and give your lackies plenty of seats in the Senate and House. How do you change the tax structure? And more importantly, why?

Tax is meant to strengthen a nation by supporting the administration and dispensation of the services that run a nation and increase its efficiency.

There is an incremental percentage that each person could be taxed on, based on how much money they make or have. This is because money costs the government a huge amount of time and effort to administer... so, the amount of money each person has, determines how much of this service they pay for by percent or on monetary transactions.

Another way to gauge each person's responsibility to the Treasury is by determining how much they have profited from the services of the Government. If a contractor benefits from opportunities that have been discovered, seized, invented or protected by the government, then a particular percentage of their profit would go to the re-funding of that government department.

Roads and highways are worn down by autos and trucks. The accelerant used to move these vehicles is the place to tax the people using these services. If you tax people at the source of the government's expenditure, they are more able to grasp why the tax exists.

I'm no President and I'm no states type dude...

but my ethical tax system would be simple and noticeably fair.

It would be based on a percentages of profits that are directly attributable to the company or person's use of any government services. This would take detailed accounting and records to determine.

That would spread the cost of the Iraq War over many companies. Those profiting most from a Governmental expenditure like a Trillion Dollars would pay their percentage in tax over time. Even auto drivers would because, the country went to work "securing American interests abroad" and each company or person that has benefited from that act will pay taxes on the profits they've made from such an act.

Whoever profited from being bailed out on Wall street would have percentages to pay back... as soon as they started making a profit again.

Of course there are services that don't fit this model and are tough to pay for without a general income of some kind going toward them.

 

[CRGreathouse]

So you also fall into the 'tax proportional to benefit' camp?

 

[Dale]

I think this is a valid point -- the rich do get more benefit. But assuming that the police/military protection applies to both the person and the property, and that both are of positive value (we prefer living to being killed, we prefer having our house to having someone burn it down), even a straight wealth tax (the property tax is a close relative) is 'too progressive', and that the tiered income tax structure is right out.

Well, although this gets into some pretty distasteful discussions and ideas it is possible to assign a dollar value to the person as well. Whenever you do that the rich still get more value than the non-rich from protection of the person.

By the way I like your approach to separating the "best basis for taxation" into the ethical "why" and the practical "how" questions.

On the ethical side: "When is it moral for a group of people to do something that it is immoral for one member of that group to do alone?" - R. A. Heinlein (with the implied answer "Never"). Applying that to government and taxation, if Abe provides a good or service to Bob then Abe is morally justified in exacting a fair-market payment for the good or service. It is otherwise not moral for Abe to forcibly take money from Bob; this is called robbery even if it is in payment for a good or service altruistically provided to his poor neighbor Chuck.

On the practical side: Once we have determined that a specific tax is moral, it should be collected in the most non-invasive and efficient means possible.

 

[baywax]

So you also fall into the 'tax proportional to benefit' camp?

Better to say that I fall into a tax calculation based on the percentage of profits that are a direct result of government services camp. Everyone benefits from government services. Not everyone is always in a position to profit from them.

This would only be one aspect of my ethical taxation policies. There would have to be other revenue sources and those would also have to have a sound and noticeably fair basis.

 

[Dale]

So you believe that you should not pay a tax on a benefit from which you do not profit? In other words the only tax payers will be businesses?

I hope I am misunderstanding.

 

[rbj]

Let R be rich, N be nonrich, DollarBenefit(x) be the dollars of gross benefit received by x, and DollarTax be the total tax dollars paid by x. My claim:

1. DollarBenefit(R) > DollarBenefit(N)
2. DollarBenefit(R)/DollarTax(R) < DollarBenefit(N)/DollarTax(N)
3. DollarBenefit(R) - DollarTax(R) ? DollarBenefit(N) - DollarTax(N)

For #1, I say "the average rich person gets more gross benefit" (post #68). For #2, I say the average rich person gets "less proportional benefit, than the middle class" (post #75). #3 is net benefit, which I currently have no opinion on. My example in post #72 has greater net benefit to the nonrich person, but I don't know what relation I expect to commonly hold.

the reason that the rich should pay disproportionately more than the middle class who should pay disproportionately more than the poor (who, if they're poor enough, should be in the "zero bracket") is that the collective need for the security and services that comes from government costs a lot of money and that the rich are disproportionately more able to support this expense than the middle class who are disproportionately more able to support it than the poor who cannot really support it at all since they are on (or below) the poverty line and ostensibly cannot even support themselves or their families.

personal income taxes should be progressive. that is not what complicates the tax code. what messes up the tax code are the many disparate different rules, the exceptions to the rules, and the exceptions to the exceptions. it's all too much to remember and if one does forget some salient minutia (or didn't find out about it in the first place), they might be surprized to find themselves with a tax burden they wouldn't have if they remembered it in the first place. the code should treat all income the same, whether one earns it in salaries or from investments (interest, dividends, gains on sale of capital) or from one's own business dealings or from gambling winnings. it's all income and should be all be added up to the AGI. whether you're rich or poor, you should be able to further adjust the AGI with a common set of rules (intended so that persons with similar net income that can be applied to their lifestyle pay similar taxes) before getting to the taxable income. (this would be exemptions and legit deductions.) and then the tax should be a consistent function of that taxable income. no phasing out of exemptions for the rich, no AMT, and no loopholes that would enable some rich bastard to direct income toward his/her lifestyle yet somehow avoid being counted as taxable income.

corporate income tax should be flat. it shouldn't matter how big the corporation is. say you have a $10 billion corporation with 1 million stockholders (so the average stockholder has $10,000 in the corporation) and another one that is a $100 million corporation with 10,000 stockholders (so the average stockholder here also has $10,000 invested in the corporation). let's say that both corporations have the same price-to-earnings ratio (10 to 1) so for both corporations, before taxes, they both earn $1000 for the average stockholder. why should the stockholders in the bigger corporation suffer (collectively, before the dividends are distributed or the earnings result in an increased stock value) a greater tax burden on what they hold than the stockholders of the smaller corporation? just because more of them got together and incorporated, why should that make any difference?

other than that, it's just like pricing theory (people should take a class on that). what is the "correct" price you charge for something? it's whatever you can get for it, but if the commodity is oft traded, the market will tell you what you can get for it. what should the different levels of government tax the citizens, residents, and income earners in their jurisdictions? it's whatever they can and get away with it, as long as the government is responsive to the people it serves as a democracy is touted to be. if they tax too much or too capriciously, someone is going to hear it on the road to re-election. some cities (like NYC) have a city income tax. most towns don't. almost any town gets their primary revenue from property taxes with different rates for commercial, industrial, and residential property. there's nothing wrong with a town considering ditching the property tax in favor of an income tax, if they wanted to and thought that the overhead of taxing the other human endeavor was small enough to make it worth it. but most towns won't make that decision and that's okay by me. but this is why there is taxation applied to these different areas of the human economy (individual or family income, collective income, various vending, real property, importing/exporting, use of infastructure, inheritance of wealth, discouraged behavior, etc.). we tweak the level of taxation on these different activities for at least two reasons: one is to extract enough money without going overboard on any particular activity and getting rebellion from the proletariat, the other is to do social engineering (tax the behavior we don't like or that causes a burden on society such as smoking, drinking, gambling, and environmental degradation or the consumption of finite and rare resources).

i hate the present screwed-up federal tax policy because it's too messy and complicated and it was made that way to benefit the rich, but i don't mind that there are different areas of taxation (income, VAT or sales tax, real-property tax, sin tax, gas tax, additional restaurant/hotel tax, duties on imported stuff, etc.) all that seems normal to me because i have all these different relationships with the different levels of government (town, state, fed) and i expect each separate relationship to have their own modes of paying.

 

[CRGreathouse]

By the way I like your approach to separating the "best basis for taxation" into the ethical "why" and the practical "how" questions.

Thanks.

Yes, I see this as an important distinction. The practical issue is something that can be tested with economic theory and (for extant methods) comparative histories. The ethical cannot, but at least ethical issues can be separated out.

I've been looking at Dr Harberger's "Observations on Tax Reform in Colombia" for the last few minutes to see if I can mine it for ideas on the practical side.

 

[CRGreathouse]

the reason that the rich should pay disproportionately more than the middle class who should pay disproportionately more than the poor (who, if they're poor enough, should be in the "zero bracket") is that the collective need for the security and services that comes from government costs a lot of money and that the rich are disproportionately more able to support this expense than the middle class who are disproportionately more able to support it than the poor who cannot really support it at all since they are on (or below) the poverty line and ostensibly cannot even support themselves or their families.

So your ethical stance would be, broadly:
1. Tax should be paid by those most able to pay it.

This would seem to suggest that only people (not corporations) should pay tax, since companies pass along taxes through higher costs to consumers, who may not be the 'most able'.

personal income taxes should be progressive.

Actually, I don't even want to assume that there will be a personal income tax -- I want to leave that for the implementation part. Maybe the best kind of taxation is a land tax, an energy tax, or something even more exotic. Perhaps there should be several taxes, but none on income. Maybe there should be a negative head tax, an energy tax, and a land tax.

 

[rbj]

So your ethical stance would be, broadly:
1. Tax should be paid by those most able to pay it.

that and those that have the most to lose should society slide into anarchism because of a failed government because it could not survive and function without sufficient revenue (e.g. Somalia). but that horse has been beaten quite a bit in this thread and you had your spin on it (that the rich do not benefit in proportion to the taxes they pay - i might agree, but not in the way you meant).

This would seem to suggest that only people (not corporations) should pay tax,

well, ultimately it is only people. my cat doesn't pay taxes (but i pay taxes on my cat's tag and on her cat food and may on the vet bills). people, whether they are individuals making money, or holding stock in a corporation, or buying gasoline, or cigarettes, are who are paying anything for anything. including taxes. this point you seem to be trying to slice and dice is pretty lightweight. not persuasive.

since companies pass along taxes through higher costs to consumers, who may not be the 'most able'.

yah, the trickle-down theory. companies pass along costs (whether they're taxes or something else) they incur and the greed they desire on to their customers to the extent the market allows them to. if the market does not allow it (ask the airline industry), they look for cost reduction elsewhere or get along with a smaller profit margin.

doesn't matter. unless a commodity is subsidized (like food stamps or student financial aid) for the poor, if they get their corn flakes at the same market i do, they can expect to pay for the commodity what i do and we all expect the price we pay for something to cover the costs of manufacture, shipping, and retailing, plus a little extra something ("profit") for everyone along that chain. whether one of the costs is a tax or not does not matter (unless it was a deliberate added tax for the purpose of decreasing consumption, like a carbon tax on gasoline).

corporations can pay a (flat, if i were running things) tax on income (even though that income gets taxed again when it gets distributed into the hands of individuals) because they get extra legal benefits from the law and society that non-corporations, namely all the legal benefits a person gets (to sue and be protected by the law) plus the limited liability of the stock holders. if you own stock in Union Carbide and this company poisons and kills 5000 people, and their survivors come after the company in court, the most you will lose is your holdings in the stock. they can't come after your house. corporations can pay a flat-rate income tax (that should also be small besides flat) that applies only to cash income. no one should be paying tax on anticipated income from the sales of some widgets that are presently in storage. I've been over this in my first post on this thread.

but the trickle-down theory for why we shouldn't call on the rich bear a tax burden that is disproportionate (since they have such a disproportionate piece of the finite wealth in the world) doesn't fly far. i think the middle class and poor would be doing much better if the rich paid a helluva lot more than W made them do, even if a piece of that increased tax burden trickled-down to the middle class and poor.

Actually, I don't even want to assume that there will be a personal income tax -- I want to leave that for the implementation part. Maybe the best kind of taxation is a land tax, an energy tax, or something even more exotic. Perhaps there should be several taxes, but none on income. Maybe there should be a negative head tax, an energy tax, and a land tax.

it's only the personal income tax that can meaningfully be progressive in rates (and maybe residential property tax, but i don't think it would be a good idea to make that progressive). sales tax, sin tax, energy tax (or an extra tax on any depleted resource) cannot be meaningfully applied in a progressive fashion. so the tax on a bag of potato chips should be greater if one buys it in a big bulk shipment than if bought individually? i don't think so.

i don't see any purpose in a negative head tax. we can't all live in Alaska and get pipeline kick-backs.

 

[Dale]

the rich are disproportionately more able to support this expense

So, in your opinion, it is moral for there to be 5 neighbors and for 4 of them to band together and, with guns and violence, to sieze property from the 5th, as long as he is the most able of the 5?

"From each, according to his ability" - Karl Marx

 

[CRGreathouse]

that and those that have the most to lose should society slide into anarchism because of a failed government because it could not survive and function without sufficient revenue (e.g. Somalia).

So you have
1. Tax should be paid by those most able to pay it.
2. Tax should be paid by those who gain the most from the government.

but that horse has been beaten quite a bit in this thread and you had your spin on it (that the rich do not benefit in proportion to the taxes they pay - i might agree, but not in the way you meant).

[...]

this point you seem to be trying to slice and dice is pretty lightweight. not persuasive.

Actually I think you misunderstand me. I'm trying to learn a good ethical basis for taxation on this thread, not to promote one. I came to the thread without any good ideas (and I don't have many ideas now).

I will comment on ethical issues that seem 'perverse' to me, and I speak freely on the economic (*not financial*) issues.

For example, I've said that I think that (in the United States circa 2008) the 'rich' receive less proportional benefit from taxes than the middle class. I haven't argued that they should pay less in taxes. In fact there are some reasonable ethical stances that would have them pay more than they pay now.

yah, the trickle-down theory. companies pass along costs (whether they're taxes or something else) they incur and the greed they desire on to their customers to the extent the market allows them to. if the market does not allow it (ask the airline industry), they look for cost reduction elsewhere or get along with a smaller profit margin.

The airline industry is a good example of one that does not appear able to pass along costs, I agree. I think the solution (not that it's a good one, just what I see happening) is that a major airline or two will fold, increasing the oligopoly power of the remaining airlines and allowing for higher fares.

And for what it's worth, this has nothing to do with "trickle-down". It's basic microeconomic pricing theory accepted by essentially every school of economics, while "trickle-down" is associated with paleo-Keynesians.

doesn't matter. unless a commodity is subsidized (like food stamps or student financial aid) for the poor, if they get their corn flakes at the same market i do, they can expect to pay for the commodity what i do and we all expect the price we pay for something to cover the costs of manufacture, shipping, and retailing, plus a little extra something ("profit") for everyone along that chain. whether one of the costs is a tax or not does not matter (unless it was a deliberate added tax for the purpose of decreasing consumption, like a carbon tax on gasoline).

I agree that prices would be uniform. But I don't think that this shows fairness (automatically).

Suppose the only tax the government levied was on food-producing companies: 1 cent per Calorie of food produced, regardless of what is sold. A 1 cent per Calorie tariff would also be imposed to keep uniformity. Now I may pay $9,000 a year in taxes, a poor person may manage to pay only $5,000, and a rich person may pay $30,000 in taxes (some food is used for entertaining, some food is wasted). But even though we all pay $7.50 for a Big Mac, I assert that the poor person is most hurt by this tax.