Federal Government Revenue: the Income Tax

What is your opinion on revenue generation through income taxes?


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Gokul43201
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Main Question or Discussion Point

This thread is meant to re-examine current systems of revenue generation and, more importantly, explore the potential for alternatives out of which governments may provide citizens with the services that they are charged with providing. The thread is not meant to be restricted to solutions for any one specific country, but if your response is more likely to apply to a specific country than have universal implementability, please identify which country/region you are talking about. In particular, I'm hoping for some focus on the issue of taxation based on income.

Today, most of the world's governments generate a significant fraction of their revenue from personal income taxes. We've heard arguments from advocates of personal freedoms, that such a system is an unnecessarily excessive incursion of privacy, and arguments that it is inherently unfair. And we've heard rebuttals that they are not only not unnecessary, but that they are additionally a means of establishing justice and equity. In this thread, I'm a little less interested in repeating these arguments (I won't cringe if they come up again, for re-examination), and a little more interested in exploring possible alternatives, or reasons for why any suggested alternatives may be infeasible or unpalatable.

I speak for myself, but hope to speak for the majority, when I say that posts with more factual substantiation of arguments will be more appreciated than posts with less factual substantiation. Arguments of philosophical preference naturally demand less external support than arguments about practical implementation or expectations of results.

So, would you prefer to see more import tariffs, or sales/use taxes, or some combination of these and other less intrusive taxes? Or do you think it's better to keep income taxes? Or is the answer somewhere in between. Or somewhere else, entirely? What are the practical advantages or disadvantages of your preferred choice?

PS: Please note that the poll above this post is not an anonymous poll.
 
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Answers and Replies

Aknazer
I think it depends on the type of government we're talking about as well. The governments of communist, socialist, and capitalist countries operate very differently and I don't think a "one size fits all" works for all of them. The next question also becomes the size of the government compared to the income of the citizens and native businesses.

A smaller government with a prosperous citizenry and businesses should be able to get plenty of money from the citizens and businesses with lower tax rates. As the government grows it will need to find more ways to increase it's budget to pay for the bigger government.

A larger government that is more socialistic in nature should get most of the money from the citizens, with a decent amount from businesses as well.

A communist country has a very large government with most everything being provided by the government. Since pretty much everything is provided/controlled by the government in some way and the people generally make very little of their own money (compared to a capitalist nation), most of the cash should come from the companies.

Import tariffs are useful, but can be dangerous. They can help keep a country's own businesses competative with imports. They also can help take some of the burden of a large government off of the people. But too big and it can drive away foreign money, which would ultimately hurt the government.

As for your question. It takes a proper balance of taxes/tariffs for a country to properly run. That proper balance is going to vary based on the type of government we're talking about.


My personal views are this. I would rather see higher personal/business taxes with tariffs used only to keep our home-made goods competative with countries that basically try to underbid our workfoce. Also everyone who has a job would need to pay their taxes and no one could be exempt. By no one being exempt and most of the money coming from the people and local businesses it makes everyone care more about just what the government is doing with the money it receives and promotes the people to be involved and on top of the government's fiscal responsibility. Also by the people being more involved they will be able to better control the size of their government. If they want a smaller government then they would decry raises in taxes, while if they want a larger government then they would need to accept raises in taxes. The biggest danger is when the people want low taxes but a large government and try to pass the buck to someone else.

But this also requires people to be reasonable with their wages. If the peoples wages are simply too high it will drive up the tariffs to levels that foreign companies simply won't want to import their goods. This in turn will cause issues with government income and cause various other issues at home.

I don't agree with both an income tax and a sales/use tax. This means that you're basically being double taxed. First when you make your money, and again once you go to spend your money. I think an income tax would be better for the government as it allows them to get their money at the start, rather than having to wait till the end (so if someone decided to hoard their money the government isn't basically without income; most important if it's the rich who decide to just quit spending most of their money).

As for tax brackets, I'm on the fence about them. A flat tax % with no exemptions makes everyone care roughly equally about government spending, but when certain people make disproportionately more money than those that work for them I can see the need to tax those at the very top more (more to help promote even pay).

Disadvantages that I can see is that it wouldn't work for every type of government (namely communism) and it likely wouldn't work too well in countries like India where companies pay the workers very little and then export the goods. Reason being is that these people already aren't making a whole lot of money. In places like this the governments would need to tax the companies doing business within their borders more. It also doesn't work to directly fix pay issues where the upper top makes most of the money and those under them are basically left without (this issue could be addressed through laws and what not, but the system of government doesn't directly do anything to discourage it).

I'm sure people will be able to find more disadvantages, but the overall goal is a government system that mainly uses it's own citizens to pay for what it does and that promotes the citizens being involved and truely caring about what their government does.
 
Al68
I would point out another aspect of the income tax, at least in the U.S.: it is purposely too complicated to comprehend, resulting in the ability of politicians to mislead people about who is being taxed how much, and who is affected by any changes.

People are easily convinced that their taxes were unchanged, when in fact they were raised or lowered, and vise versa. And people are easily convinced of the same thing regarding the taxes of others.

It's basically not just a tool for revenue, it's a tool for fraud and theft by politicians, in a way that would not be possible with a sales tax, for example.
 
AlephZero
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First, define "income".

There is no great problem defining "wages" or "salaries", and taxing them in a straightforward and easy to understand manner. (I don't have any experience of the US system so I can't judge whether that aspect of it is easy to undertstand or not).

However as soon as your income level rises beyond the level of ready cash that you need for day to day living, nothing is simple, and you don't need either genius or a lot of training to think of ways to defer actually receiving "income" in a form that is identifiable as such.

Most taxation systems have got to their current state as the authorities try to plug the loopholes in the system, and create more unintended consequences as they do so.

Of course the largest unintended consequence is that the "little people" can't avoid the tax on their montly pay checks, but for the top earners "income tax" is almost entirely voluntary. As my later post shows, they still pay a lot of it, but that is not inconsistent with the statement that it is voluntary!
 
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Al68
AlephZero
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A summary of the UK tax system (about 50 pages, but fairly easy reading) here: http://www.ifs.org.uk/bns/bn09.pdf

Some key numbers (2009 data):
Sources of government tax revenues:

Income tax (less tax credits) 27%
National Insurance (paid by employers, per employee) 18%
Value added tax (sales tax) 15%
Other indirect taxes (alcohol, fuel, tobacco, etc) 11%
Council tax (based on the value of the property you live in, whether or not you own it) 5%
Taxes on capital gains etc 3%
Company taxes 13%
Miscellaneous 8%

Sales taxes as a percentage of cost of items:
Standard rate 17.5% (in 2009) Note: many items including food are not taxed.
Beer 29%
Wine and spirits 55-60%
Motor fuel 58-62%
Cigarettes: 79%

Number of income tax payers (total UK population about 55m)
Basic rate: 26.7m
Higher rates: 3.6m
The top 1% of taxpayers paid 23% of the total income tax
The top 50% of taxpayers paid 89% of the total.
 
I want to discuss this, but I don't see a way without it becoming an ideological fight. I applaud the attempt however... I will say that I voted for a slightly higher income tax.
 
ultimately, the end consumer/producer pays all tax. so i think, not only as a matter of principle, but as a practical matter, and for reasons of efficiency in the system, it is better to tax products, services, and corporations. the tax will be included in the price of goods and services, and therefore the individual still pays federal tax on his income as he spends without being taxed directly. so, it's silly to tax individuals.

i think what you see today though, is that the IRS isn't so much taxing low income people as it is performing a means-testing service for the distribution of government benefits. and this is the real reason that you won't see the individual income tax going away anytime soon.
 
Aknazer
ultimately, the end consumer/producer pays all tax. so i think, not only as a matter of principle, but as a practical matter, and for reasons of efficiency in the system, it is better to tax products, services, and corporations. the tax will be included in the price of goods and services, and therefore the individual still pays federal tax on his income as he spends without being taxed directly. so, it's silly to tax individuals.

i think what you see today though, is that the IRS isn't so much taxing low income people as it is performing a means-testing service for the distribution of government benefits. and this is the real reason that you won't see the individual income tax going away anytime soon.
My question then is, what happens when someone makes 1billion+ a year, but only spends a fraction of that? If you tax them at the start instead of the end then you don't have to worry about the hoarding of the money.

I do agree that if you tax the end goods that the tax will be passed on to the individual, but what about goods that aren't bought from a retailer or are from out of the country? Waiting till the end simply means that there's that many more ways to potentially get around it imo.
 
My question then is, what happens when someone makes 1billion+ a year, but only spends a fraction of that? If you tax them at the start instead of the end then you don't have to worry about the hoarding of the money.

I do agree that if you tax the end goods that the tax will be passed on to the individual, but what about goods that aren't bought from a retailer or are from out of the country? Waiting till the end simply means that there's that many more ways to potentially get around it imo.
i don't think hoarding is an issue. people don't get to be that rich by stuffing their mattresses with their wages.

when you bring goods from outside the country, you add a duty to them. if a company imports items to sell, you tax the import company.
 
AlephZero
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i don't think hoarding is an issue. people don't get to be that rich by stuffing their mattresses with their wages.
No, but they don't spend every penny of goods and services either. Or are you proposing making a financial investment in a company (either by setting up a new company yourself, or buying shares in it) should be taxed at the same rates as other "goods and services"?

If you do impose those rates of tax, then stuffing mattresses suddenly gets to be WAY more attractive than it is right now. That is probably not a good thing in the long term.
 
No, but they don't spend every penny of goods and services either. Or are you proposing making a financial investment in a company (either by setting up a new company yourself, or buying shares in it) should be taxed at the same rates as other "goods and services"?

If you do impose those rates of tax, then stuffing mattresses suddenly gets to be WAY more attractive than it is right now. That is probably not a good thing in the long term.
so what? do you spend every penny, or do you save some?

arguments over "fairness" are a bit tiresome, anyway. let's say you raise tax on income so that a CEO at some manufacturer loses 5% of his takehome pay. he's got to make up for that somehow, maybe with a salary increase. to pay for that increase, he can raise prices on the consumer (you pay the tax), or find a way to make his product cheaper. cheaper might include moving some of the work offshore, lowering the tax base. now what?
 
Aknazer
so what? do you spend every penny, or do you save some?

arguments over "fairness" are a bit tiresome, anyway. let's say you raise tax on income so that a CEO at some manufacturer loses 5% of his takehome pay. he's got to make up for that somehow, maybe with a salary increase. to pay for that increase, he can raise prices on the consumer (you pay the tax), or find a way to make his product cheaper. cheaper might include moving some of the work offshore, lowering the tax base. now what?
If he moves it off shore that's where the tariffs and import taxes come in to keep your jobs at home competative. But the issue that you're not addressing is that if people aren't spending money then the government isn't making money. And if the government isn't making money then it can't provide the services that it has agreed to provide.

Now this isn't a big worry during economic prosperity, but when there's an issue (such as a recession) and people start tightening their belts the government takes a double hit. First it's not going to be making as much because it's people aren't making as much. Secondly it's going to take another hit because the people who are still making money simply aren't spending as much of their money as they were before.

So while we the people might not like it as much, I feel that taxing at the start rather than the end is better overall in terms of keeping the government running. Plus it helps prevents the government from trying to hide things by them trying to play games with how much certain goods are taxed. The simpler the tax code the better it is for both the people and the government.
 
so what? do you spend every penny, or do you save some?

arguments over "fairness" are a bit tiresome, anyway. let's say you raise tax on income so that a CEO at some manufacturer loses 5% of his takehome pay. he's got to make up for that somehow, maybe with a salary increase. to pay for that increase, he can raise prices on the consumer (you pay the tax), or find a way to make his product cheaper. cheaper might include moving some of the work offshore, lowering the tax base. now what?
Kill them? jay kay...


No fairness cuts both ways however, which is my point. I would rather be unfair to a powerful and wealthy minority than the vast majority.
 
854
16
I voted for no taxes other than income taxes. All my life I have been paying taxes on my income and have been able to save for retirement. Now in the middle of the game I don't want to see the rules change so that my retirement savings will be taxed as they are spent.

I get an apple a day and so does my neighbor. I like to eat my apple in the afternoon and my neighbor likes to eat his in the morning. This is fair and good. However, a socialist came by at noon and noticed that I had an apple and my neighbor did not. This is not fair he declared and proceded to make things equal. He divided my apple into three equal pieces. One for my poor neighbor, one for me, and one for the socialist.
 
I voted for no taxes other than income taxes. All my life I have been paying taxes on my income and have been able to save for retirement. Now in the middle of the game I don't want to see the rules change so that my retirement savings will be taxed as they are spent.

I get an apple a day and so does my neighbor. I like to eat my apple in the afternoon and my neighbor likes to eat his in the morning. This is fair and good. However, a socialist came by at noon and noticed that I had an apple and my neighbor did not. This is not fair he declared and proceded to make things equal. He divided my apple into three equal pieces. One for my poor neighbor, one for me, and one for the socialist.
That's not socialism, that's a kleptocracy. :wink:
 
854
16
That's not socialism, that's a kleptocracy. :wink:
Tell it to the socialists.
 
Al68
That's not socialism, that's a kleptocracy. :wink:
Aren't those synonyms? Seriously.
 
Very funny guys, but no, they're not synonyms, and I'll tell it to the kleptocrats. Socialism is like pacificsm... it's an ideal, in practice it turns into something other than its original intent, and ceases to be Socialism. Still, lets not confuse the principle with the practice.
 
Al68
Very funny guys, but no, they're not synonyms, and I'll tell it to the kleptocrats. Socialism is like pacificsm... it's an ideal, in practice it turns into something other than its original intent, and ceases to be Socialism. Still, lets not confuse the principle with the practice.
Isn't the principle the same for both: the use of force against citizens to own (control) their property/fruits of their labor?

Or are you using the word socialism to refer to people all just inexplicably deciding to "share" voluntarily?

I'm perfectly serious, as you should know. I've made this exact point multiple times.
 
Isn't the principle the same for both: the use of force against citizens to own (control) their property/fruits of their labor?

I'm perfectly serious, as you should know. I've made this exact point multiple times.
If not force, then means of coercian, but what other means does any group have (ultimately) to enforce ANYTHING?

Still, the major issue here is: socialism would be to share the apple, or better yet, the orchard... no middleman taking a third of it is needed. In practice, you need that middleman, or a fundamental shift in human nature, so the theory really is about spontaneous cooperation... the practice is about force.
 
854
16
Still, the major issue here is: socialism would be to share the apple.
It's my apple. That guy already ate his apple and I didn't get any share of it. These are the principles and practices of a thief.
 
Al68
Still, the major issue here is: socialism would be to share the apple, or better yet, the orchard... no middleman taking a third of it is needed.
The middleman stole two thirds, not one third, of the apple. Presumably if the socialist agent didn't take a cut for himself, he would steal half the apple.
In practice, you need that middleman, or a fundamental shift in human nature, so the theory really is about spontaneous cooperation... the practice is about force.
But those are very different things. One person giving half of his apple to another is very different from someone taking half of his apple by force. The word socialism is normally used to refer to the latter, but not the former.

The word socialism simply does not mean voluntary sharing, despite attempts by socialists to equate their kleptocratic agenda with voluntary sharing.
 
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Aknazer
The middleman stole two thirds, not one third, of the apple. Presumably if the socialist agent didn't take a cut for himself, he would steal half the apple.But those are very different things. One person giving half of his apple to another is very different from someone taking half of his apple by force. The word socialism is normally used to refer to the latter, but not the former.

The word socialism simply does not mean voluntary sharing, despite attempts by socialists to equate their kleptocratic agenda with voluntary sharing.
In an "ideal" world (read, utopia) it would be voluntary sharing and everyone would give their best effort to work towards the common good. But that isn't how the world is. You have some people who are greedy, and others who just plain don't agree with the concept, among other issues. And due to this the only way to enforce the "ideal" is with force. Of course using force perverts the ideal. And that is ultimately the biggest issue with both socialism and communism. The "ideals" are great, but given human nature they don't work in real life. Which means that you have to stifle liberty and freedom in order to try and enforce the ideal, at which point the ideal is lost. Now some countries are able to enforce this, but there generally comes a point where the people simply won't tolerate it anymore and the country collapses.

I would recommend you don't confuse the real world application and how the idea plays out with what the original idea was.
 
854
16
I would recommend you don't confuse the real world application and how the idea plays out with what the original idea was.
I have this great idea that will benefit everyone. First hand over your money. Only please, as you fork over, please don't confuse the real world application and how the idea plays out with what the original idea was. Oh, and your watch too.
 

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