Which Tax Basis Best Balances Economic Goals?

[Dale]

With Hucabee in the presidential race suggesting that we should move from an income tax to a consumption tax I wondered what the best basis for taxation is and why. After all, any tax is punitive and tends to reduce the thing taxed. So under a consumption tax people will tend to consume less and save more. I'm not clear how that would impact the economy.

So what do you think, what is the best basis of taxation and why?
Labor (income tax)
Wealth (property tax)
Consumption (sales tax)

 

[John Creighto]

I think property and sales tax are the best to a point. I don't think the sales tax should be higher then 7%. I'm not sure sure how high the property tax should be but the point is if you can't raise enough taxes though other means then you need an income tax. Ron Paul points out that in 1913 there was no income tax and that without the income tax the US government would have the same tax revenue it had 10 years ago.

http://www.motherjones.com/news/update/2007/12/huckabee-fair-tax-fallacies.html
http://www.youtube.com/watch?v=Dt3-GaP9P-w&feature=related

Clearly the level of US spending is far to high to abolish the income tax and I really do not know what services would have to go to get rid of it and if the end result would be a net plus or minus. Personally I wouldn't eve think of going bellow a 15% tax as that still should give the government lot of revenue but it would not feel like a huge burden.

 

[DrClapeyron]

How about all three you have listed and more? The best basis for taxation is exchange or transfer:

Exchange good for service: tax
Exchange good for good: tax
Transfer money from savings to checking: tax
Transfer yourself across national boundary: tax
You croak after 3 years of retirement: tax

 

[Dale]

How about all three you have listed and more? The best basis for taxation is exchange or transfer:

Exchange good for service: tax
Exchange good for good: tax
Transfer money from savings to checking: tax
Transfer yourself across national boundary: tax
You croak after 3 years of retirement: tax

Well, that is essentially the current system. So you basically think the current tax system is close to optimal?

 

[Dale]

I think property and sales tax are the best to a point. I don't think the sales tax should be higher then 7%.

That's interesting, why 7%?

 

[John Creighto]

Well, that is essentially the current system. So you basically think the current tax system is close to optimal?

The higher the level of taxation the more tax you have the methods you will need to collect it. Thus in the current system a mix of types of taxation is required. The relative level of that can be tweaked and there will be winners an loosers.

 

[D H]

Personally I wouldn't eve think of going bellow a 15% tax as that still should give the government lot of revenue but it would not feel like a huge burden.

I think we should keep this discussion to the "best" mechanism by which the federal government should collect revenues. Adding considerations of what the "correct" amount of the federal government should collect will only cloud the original topic.

Central to this discussion are concepts of fairness and perceived value. To start with, is it fair to make the wealthy pay more taxes than everyone else? I don't think anyone would advocate a truly flat tax. Since no one else will propose such an atrocity, I will for the sake of starting the discussion. I propose a $20,000 federal head tax. What's wrong with this? The rich don't drive any more than most other people, so why should they pay more taxes than other people.

What is wrong with this is (1) Most people don't make that kind of money, and (2) the rich do benefit more from government spending than do the poor. While the rich may not drive much more than the middle class, the companies whose stocks they own do benefit from improved roadways. Making it easier for people to get to work makes it easier form companies to make a profit. The rich benefit from government services to people other than themselves.

OK, so the rich should pay more taxes than the poor. Should it be proportionately more (which argues for a sales tax), or even steeper (which argues for an income tax)? I don't know what is right, as I have never seen a study that truly addresses this central question.

 

[DrClapeyron]

Well, that is essentially the current system. So you basically think the current tax system is close to optimal?

Why not? Nothing serious in consequence has stemmed from the current tax system that has left people vulnerable to some kind of bodily injury. The bank has not been broke and the economy is strong, so why overhaul a system at the cost of who knows how much on the hunch it could benefit?

 

[Dale]

Why not? Nothing serious in consequence has stemmed from the current tax system that has left people vulnerable to some kind of bodily injury. The bank has not been broke and the economy is strong, so why overhaul a system at the cost of who knows how much on the hunch it could benefit?

That's a good point. As much as I like the idea of the simplicity of a retail sales tax, any such major overhaul is a risk. The current system, warts and sores and all, does function.

 

[Dale]

What is wrong with this is (1) Most people don't make that kind of money, and (2) the rich do benefit more from government spending than do the poor. While the rich may not drive much more than the middle class, the companies whose stocks they own do benefit from improved roadways. Making it easier for people to get to work makes it easier form companies to make a profit. The rich benefit from government services to people other than themselves.

Also, the rich directly benefit more because they have more assets that are protected by the police and military. As a Libertarian I disagree that John should pay for a benefit to Fred, regardless of the fact that John, as Fred's employer, gets some indirect benefit, but I think even so that there can be a direct justification for the rich to pay more than the poor.

 

[D H]

I picked our roadways as a benefit of government expenditures we see every day. Military and police are another good example of where the rich benefit more than do other people. The key question is, how much more? It seems to me that any investigation into "what is fair" is going to be biased by the investigators own perceptions of fairness. I imagine that one could spin this anything between "the rich shouldn't pay any taxes because they are the ones who create all the jobs" to the "rich should pay all the taxes because it isn't fair to make someone who doesn't have the kinds of wealth pay while the rich are still wealthy".

I think anyone who makes any income should pay something in taxes. It might be just a token payment at the bottom end, but they should still pay something. People who don't pay anything don't appreciate what they are getting for free. Even a token payment much smaller in value than the received benefit changes the perception drastically.

At the other end, a fair assessment of how much the rich receive from government versus how much they pay is in order. I suspect the old rich, who largely live off inherited wealth, receive benefits that vastly outweigh tax payments. On the other hand, I suspect the new rich, who are still in the process of building wealth by working for it, make payments that vastly outweigh received benefits.

 

[Dale]

I suspect the old rich, who largely live off inherited wealth, receive benefits that vastly outweigh tax payments. On the other hand, I suspect the new rich, who are still in the process of building wealth by working for it, make payments that vastly outweigh received benefits.

That is one of my fundamental problems with using income as a measure of wealth in typical "tax the rich" approaches. The individuals with the highest income are small business owners, and they pay a huge burden of taxes. Yet, they are not generally what I would call "rich".

 

[DrClapeyron]

Retail taxes would put the tax burden on the buyer and not the seller, the current system places the burden on everyone. Income tax and property tax are good alternates against a passive economy in which spending has gone down. The abundance of taxes and their variety may indicate the necessity to keep steady inflow for government spending in hot and cold times.

 

[Dale]

Retail taxes would put the tax burden on the buyer and not the seller

The burden is on the buyer anyway, the price of the good purchased includes any taxes that the producers and sellers have to pay.

 

[DrClapeyron]

A sales tax is just that, a tax on a sale. He who buys must pay the tax, the seller collects the tax and pays this to the government; your buyer has paid the tax. Even when the total weight is not entirely on the buyer, the seller carries less of the burden. The seller can always alter his inventory to offset a reduction in sales due to the tax, but the tax will always be there for the buyer.

 

[Constructe]

Actually, I think the best taxation method is ones that are easy to enforce and don't have room for cheating. There are two, property taxes (it's hard to take or hide property, although you must make sure it is assessed fairly) and no tax (the government prints free money and the inflation in production of excess money is the tax on all).

Unfortunately the second is not progressive and some may argue is regressive if inflation affects food staples etc. more than luxury items. Therefore it can be balanced with the first since it is progressive and as an added benefit prevents property squatting, land hoarding, and excessive property prices which moderate inflation. Unfortunately, the super rich don't like property taxes and some worry that the government can't be trusted not to print infinite amounts of money for assorted benefits.

If you are in the US, essentially the US has already adopted the first taxation tactic of printing excess money. In this case it is called deficit spending. We will see how much free money they can make before the system breaks down. The only thing is that they don't acknowledge that this is a tax and the natural byproduct (inflation and dollar depreciation). The only way of masking this taxation is by creating a borrowing method from a independent bank called the Federal Reserve that gets to make free money off of the government (taxpayers) since the government must pay interest for printing money which they technically don't have to do. This makes bankers happy and proves the government isn't making money but borrowing it even though any economist will tell you this process creates money (fed produces money for deficit spending, lends to the gov, gov spends the money, Fed creates bonds and sells them to the banks, those who get $ from the fed spending deposit it in the bank which goes to buy more bonds). If we were rational beings we would admit the free creation of $ and scrap the interest the gov pays which is actually the taxpayers footing the interest every year. This would make the bankers angry, especially the federal reserve which is a private banks who makes good money off this scheme.

Another good tax is inheritance tax since the recipients have no real justification to assets usually aside from the fact their parents are rich. Welcome to the random birth lottery. The only downside to this is that their is many ways to avoid this tax (hiring your children, slipping them money, giving to people to give to children, insurance policies, buying expensive stuff and having it wind up with them in the future, etc.). That being said, although it is one of the most rational, it doesn't fit the easy to enforce and little room for cheating rule. This also, super rich people will lobby strongly against proving, the best doesn't really the one that is possible.

So in the end, the government has found out the best tax is no tax, and embraced deficit spending, not flat out printing $. This works as long as you have enough inferior taxes to cover the interest payments and hide the fact you are depreciating your currency. Also required is the fact that your economy must grow fast enough to offset the inflation you are experiencing or you may find your population getting really mad at the government even though they should be irate at themselves for asking the government to spend beyond their means and the bankers who are getting rich because you use a debt system rather than calling it a inflationary tax and monitoring inflation like a hawk (what the fed is suppose to do). If you flat out print $ you know you are overprinting when inflation shoots way up (meaning you are spending too much).

So I guess this is an economics lesson as well as a taxation one.

 

[baywax]

A GST (General Services Tax) was introduced by the Canadaian Liberals way back in 19something or so... it was 7 percent. This was on top of income tax. Then each of the provinces (like states to you guys) was able to impose whatever sales tax they wanted. Many went with 7 percent, one oil rich province has no sales tax.

This meant that all year, before income tax, everyone, except in Alberta, was paying 14 percent tax on pretty well everything from food to a shoe shine. That's when we started paying off our national debt rapidly. And we saw some very interesting programs going into place, including the "hydrogen highway" between Southern California up to Whistler BC and the Pincher Creek wind farm which is going private as of recently.

Somehow people absorbed the GST and PSTs along with around 24 through to 50 percent income tax. (based on income). And the debt got smaller. And Canada looked pretty good for quite a while with surpluses every year. Then the Tories (Conservatives) got in and started using the GST as political fodder by cutting it back 2 percent over 2 years. This is the slippery slope back into debt for the nation and for the social and technological advances we'd made during the years of higher taxes. So, I'd say taxation should match the wealth of the country along with the needs of its treasury and its people.

 

[iansmith]

A GST (General Services Tax) was introduced by the Canadaian Liberals way back in 19something or so... it was 7 percent.

The GST was introduce by the conservatives of Mulroney in 1991 and they lost the following election because of it.

 

[baywax]

The GST was introduce by the conservatives of Mulroney in 1991 and they lost the following election because of it.

Ah, thanks iansmith. I wonder how well a tax like that would go over in the US?! Shades of a tea party come to mind.

 

[CRGreathouse]

Central to this discussion are concepts of fairness and perceived value. To start with, is it fair to make the wealthy pay more taxes than everyone else? I don't think anyone would advocate a truly flat tax. Since no one else will propose such an atrocity, I will for the sake of starting the discussion. I propose a $20,000 federal head tax. What's wrong with this? The rich don't drive any more than most other people, so why should they pay more taxes than other people.

What is wrong with this is (1) Most people don't make that kind of money, and (2) the rich do benefit more from government spending than do the poor. While the rich may not drive much more than the middle class, the companies whose stocks they own do benefit from improved roadways. Making it easier for people to get to work makes it easier form companies to make a profit. The rich benefit from government services to people other than themselves.

OK, so the rich should pay more taxes than the poor. Should it be proportionately more (which argues for a sales tax), or even steeper (which argues for an income tax)? I don't know what is right, as I have never seen a study that truly addresses this central question.

I think that the income-'tax benefit' curve is concave down and increasing: a person making $2X benefits more than a person making $X but less than twice as much. But I don't think I'd be happy with a regressive income tax, so apparently I support some kind of implicit redistribution of wealth. (Of course a proportional system would be less redistributive than our current system, but by the assertion in my first sentence such a system would be redistributive.)

So this raises a more basic question: On what ethical grounds should we base our taxation system?

 

[D H]

I think that the income-'tax benefit' curve is concave down and increasing: a person making $2X benefits more than a person making $X but less than twice as much.

I have suspicions that the "tax benefit" curve is U shaped, with a minimum somewhere in the upper middle class / moderately rich range. The upper middle class work hard for their money and pay taxes at the highest marginal rate. They don't have quite enough money to have accumulated vast quantities of wealth nor to pay some accountant to find a way to avoid taxes on a truly massive scale ala Leona Helmsley. The über-rich on the other hand have large amounts of accumulated wealth. The protection they receive from internal and external strife by the police and military protects that accumulated wealth. As wealth is highly nonlinear with respect to income, they, like the poor, receive benefits out of proportion with respect to their incomes (wealth is highly nonlinear with respect to income. That they can fruitfully hire people (including politicians) to help them avoid taxes exacerbates this discrepancy.

The rich also benefit from taxes in another way. They have employees who benefit from government spending. The public roads that make it easier for people to get to work, the public education that makes for better jobs, the research that makes for better lives benefits not only the employees but also the employers. Poor people, and even middle class people, do not have employees.

So this raises a more basic question: On what ethical grounds should we base our taxation system?

On the lesser of two evils principle. Taxation is inherently unfair and immoral. It is in a very real sense government-sanctioned theft. However, taxation is necessary to support our modern government, and a world without government would be extremely unfair, completely amoral, and utterly backwards. Taxation is a necessary evil.

One problem with "fairness" is that what constitutes fairness is very much in the eye of the beholder. To some on the far right, paying anything but a flat rate is unfair. To some on the far left, earning 200 million per year is inherently evil and not taxing that at anything less than a 90% marginal rate is unfair. A bigger problem, to me, is that since taxation is inherently "unfair", any talk of "fairness" is an oxymoron. It is akin to a prostitute or porn star claiming to have regained her virginity.

If taxation is inherently unfair, but is at the same absolutely essential, the best we can do is to spread the pain around evenly. Taking even 10% of the income of someone who makes $25,000 per year hurts that person a lot. That confiscated $2,500 means a lot more misery to someone who is just barely getting by. Taking 10% from someone who makes ten times that doesn't hurt near so much. Those who make $250,000/year are well beyond worrying about the basic essentials of life. That confiscated $25,000 means giving up a timeshare in Vail. Spreading the pain around evenly entails a progressive tax system.

 

[rbj]

I think anyone who makes any income should pay something in taxes. It might be just a token payment at the bottom end, but they should still pay something. People who don't pay anything don't appreciate what they are getting for free. Even a token payment much smaller in value than the received benefit changes the perception drastically.

there are those poor enough (but with non-zero income) that any tax would be a hardship that would take food out of their mouth (or their dependents) or warmth from the furnace. i think a "zero bracket" for those living at or below the poverty line is fair and appropriate.

about roadways and other infrastructure, there should be user fees (on gasoline or other fuel, tires, vehicle sales) to cover that. a decent tax on gasoline would also serve the purpose to discourage waste to protect the resource for future generations (as well as pay for roads and bridges).

there is an "art" to taxation to hit up the different sectors of commerce and consumption, provide for the citizenry, and not incite rebellion (if any taxation becomes too burdensome). so we pay taxes based on our income, consumption (sales or VAT tax), property (that we pay in rent), "extravagant" consumption (extra tax on hotels/lodging, prepared or restaurant food, stuff that hits out-of-towners that don't vote locally), actions that "take" something out of the collective environment (say, a "carbon tax", etc.), and "sin" tax (alcohol, tobacco, gambling, whatever hootch that is legal) to be both tolerant of and discouraging of different sins that are deemed not-so-good for society. the trick is tweaking these different classes of taxation to get those who most are able to pay, those who are an extra drag on the collective economy to pay, those who are out-of-town and don't vote locally to pay, whatever other group that is less sympathetic to pay. this is also to sort of officially discourage (via taxation) behavior that society wants to discourage and to sort of subsidize behavior that society encourages.

At the other end, a fair assessment of how much the rich receive from government versus how much they pay is in order. I suspect the old rich, who largely live off inherited wealth, receive benefits that vastly outweigh tax payments. On the other hand, I suspect the new rich, who are still in the process of building wealth by working for it, make payments that vastly outweigh received benefits.

we all benefit from an orderly society with laws that protect us and our property (and our businesses or means of living, etc.) and the rich have a lot more to lose if society utterly breaks down than the poor. also, the rich have a higher percentage of "disposable income" than the poor.

the laws could be far more simple and fair and consistent for everyone. if we could ditch the loopholes in the regular income tax, we could also do away with the A.M.T (alternate minimum tax, which is flat rate), we could also do away with any differentiation between sources of income. salaries should be the same class of income as dividends and capital gains, but present U.S. tax law eliminates taxation on dividend income and limits the rate on capital gain income (do you know many working-class people who make most of their income with capital gains or dividends?). it's an obvious tax-gift to the wealthy and is part of the class warfare of the rich upon the poor.

i could sound a lot more like a Republican when it comes to corporate income tax. i think if the reforms that eliminate the Bush tax-givaways to the rich are adopted (like retaxing capital gains and dividends like all of the rest of one's income) and loopholes eliminated, then along with it corporate income tax should be completely flat rate and a low rate and apply only to cash income. i.e. any cash layout for manufacturing and development is a loss that can be deducted against cash income and only net realized cash income is counted for corporate income tax purposes. no taxation on the income anticipated by some widget that is sitting in inventory, and no need to depreciate the widget sitting in inventory when it doesn't sell for what you anticipated it to sell for. if the widget cost money to make, when that money had to be paid you deduct that cost from the corporate income. if the widget sat in inventory and never got sold, your corporation never saw any income for it, so no taxes were assessed. that is both simple and fair. also, whatever income that a corporation is able to brag to its stockholders about should be exactly the income that the taxman sees in his accounting. and whatever loss that the corporation cries to the taxman about (as a deduction) must also be reported to the stockholders. there should be one set of books for profit and loss. not different sets for different observers.

 

[D H]

there are those poor enough (but with non-zero income) that any tax would be a hardship that would take food out of their mouth (or their dependents) or warmth from the furnace. i think a "zero bracket" for those living at or below the poverty line is fair and appropriate.

I agree that there should probably be some limit below which a person should not pay any taxes. I think this should be below the poverty line. The reason: People who don't pay anything don't feel they are a part of the system. I have worked for enough volunteer organizations to have learned that charging some token fee for services rendered makes the recipients value that service a whole lot more than if the service were provided for free. Even if that token fee but is a paltry fraction of the true cost, the act of paying something makes the recipients of the largess appreciate treat what they are receiving with respect. Give a poor person a cashmere sweater and they will wear while changing the oil in their car. On the other hand, they will only wear the ragged suit they bought from some second-hand store to church. The cashmere sweater has no value. The suit does.

In the case of taxes, making even a very poor family pay some taxes may spur that family to force their children to continue going to school. They are paying for it, after all. Without that spur, the poor do not appreciate the value of an education.

we all benefit from an orderly society with laws that protect us and our property (and our businesses or means of living, etc.) and the rich have a lot more to lose if society utterly breaks down than the poor. also, the rich have a higher percentage of "disposable income" than the poor.

Have you read my other posts? The rich not only have more to lose than do the poor, they have more to lose that is disproportionate to their income.

i could sound a lot more like a Republican when it comes to corporate income tax. ...

You could, but you don't. The basic problem with corporate income taxes is that corporations simply pass the taxes on to their customers. Since the poor and middle class spend a greater proportion of their income on goods, taxes on businesses are inherently regressive.

 

[baywax]

On what ethical grounds should we base our taxation system?

Ethically, taxation provides a stable country or nation for all those citizens of that country. So, there is less crime because services are offered to everyone regardless of their income. This means the more "well to do" citizens are slightly less inclined to be mobbed and robbed because "Joe the 7/11 clerk" has a nicely paved highway just like "Joe the Stockbroker".

Taxation plays the ethical part of evening the playing field for all citizens... theoretically. When LA is hit with a tsunami... they will get the same influx of government funds (our taxes) as New Orleans... er... bad example... but, you can see where I'm going with this.

Taxation really does take the pressure off the rich in that everyone can enjoy pretty much the same benefits of a "rich country" because of taxation. In Canada we have some of the most luxurious spas that are actually "Community Recreation Centres" paid for by tax dollars. The price for a year's subscription is 1 dollar a day. This applies to the rich as well as the poor. But, if you look at the tax structure in this country, the people making over $50,000 are paying close to 50 percent tax on that income... unless they are self employed where they can write off a large amount of their expenditures.

But my point is... in terms of ethicality... taxation provides a rule that placates the entire citizenship into thinking two things... one: "we have the same conditions as the rich" and two: we are all relatively in the same boat when the tax man cometh!.

 

[CRGreathouse]

I have suspicions that the "tax benefit" curve is U shaped, with a minimum somewhere in the upper middle class / moderately rich range.

I don't know. The nonrich benefit just as much as the rich from general government protection (police, military) in terms of retaining life, limb, & property.

And are you talking about the marginal benefit curve or the total benefit curve? I certainly think that a person making $100,000 benefits more from government services than someone making $50,000 (though less as a proportion of either income or taxes). In fact I feel that return to taxes is strictly increasing (ignoring the small discontinuities), even if only slightly... do you disagree?

I could see marginal benefit increasing from moderately rich to very rich, though I don't think the benefit-to-tax ratio ever matches that at the $30,000 income level. (Most would say this is right and proper.)

On the lesser of two evils principle. Taxation is inherently unfair and immoral. It is in a very real sense government-sanctioned theft. However, taxation is necessary to support our modern government, and a world without government would be extremely unfair, completely amoral, and utterly backwards. Taxation is a necessary evil.

One problem with "fairness" is that what constitutes fairness is very much in the eye of the beholder. To some on the far right, paying anything but a flat rate is unfair. To some on the far left, earning 200 million per year is inherently evil and not taxing that at anything less than a 90% marginal rate is unfair. A bigger problem, to me, is that since taxation is inherently "unfair", any talk of "fairness" is an oxymoron. It is akin to a prostitute or porn star claiming to have regained her virginity.

If taxation is inherently unfair, but is at the same absolutely essential, the best we can do is to spread the pain around evenly. Taking even 10% of the income of someone who makes $25,000 per year hurts that person a lot. That confiscated $2,500 means a lot more misery to someone who is just barely getting by. Taking 10% from someone who makes ten times that doesn't hurt near so much. Those who make $250,000/year are well beyond worrying about the basic essentials of life. That confiscated $25,000 means giving up a timeshare in Vail. Spreading the pain around evenly entails a progressive tax system.

Let me attempt to summarize your points, then you can correct me.

The ethical basis for taxation is:
1. The (Hobbesian) state of nature is "extremely unfair, completely amoral, and utterly backwards".
2. Taxation is an inherently unfair necessary evil.
3. Taxation used to counter #1 can be just; taxation beyond this point is unfair.
4. Taxes should be levied on a utilitarian basis: rich pay more because their marginal benefit from the money is lower.

 

[CRGreathouse]

there are those poor enough (but with non-zero income) that any tax would be a hardship that would take food out of their mouth (or their dependents) or warmth from the furnace. i think a "zero bracket" for those living at or below the poverty line is fair and appropriate.

'Obviously' the justice of this approach depends on where the poverty line is. But a reasonable question might be: why stop there? Determine some point (perhaps the poverty line, perhaps higher or lower) at which there is no tax, and have positive tax above and negative tax below.

Regardless of the ethics (a major issue!), this is generally found to be the most efficient system of redistribution.

about roadways and other infrastructure, there should be user fees (on gasoline or other fuel, tires, vehicle sales) to cover that. a decent tax on gasoline would also serve the purpose to discourage waste to protect the resource for future generations (as well as pay for roads and bridges).

Is that to shift taxes from those who are too poor to drive to those who do, or because people should pay for the services they use?

I strongly agree about the value of internalizing externalities (people pay more for gas because gas pollutes, or whatnot), regardless of your view on the above.

there is an "art" to taxation to hit up the different sectors of commerce and consumption, provide for the citizenry, and not incite rebellion (if any taxation becomes too burdensome). so we pay taxes based on our income, consumption (sales or VAT tax), property (that we pay in rent), "extravagant" consumption (extra tax on hotels/lodging, prepared or restaurant food, stuff that hits out-of-towners that don't vote locally), actions that "take" something out of the collective environment (say, a "carbon tax", etc.), and "sin" tax (alcohol, tobacco, gambling, whatever hootch that is legal) to be both tolerant of and discouraging of different sins that are deemed not-so-good for society. the trick is tweaking these different classes of taxation to get those who most are able to pay, those who are an extra drag on the collective economy to pay, those who are out-of-town and don't vote locally to pay, whatever other group that is less sympathetic to pay. this is also to sort of officially discourage (via taxation) behavior that society wants to discourage and to sort of subsidize behavior that society encourages.

Unless these taxes are used to internalize externalities, I don't see the value. Why not just have one big tax?

we all benefit from an orderly society with laws that protect us and our property (and our businesses or means of living, etc.) and the rich have a lot more to lose if society utterly breaks down than the poor. also, the rich have a higher percentage of "disposable income" than the poor.

Under proportional taxation, the rich pay just as much to protect each dollar of their assets as the poor. Under progressive taxation the rich pay more for each dollar they're protecting. So this argument seems to support proportional taxation (which I assume by the rest of your post you see as insufficiently progressive).

the laws could be far more simple and fair and consistent for everyone. if we could ditch the loopholes in the regular income tax, we could also do away with the A.M.T (alternate minimum tax, which is flat rate), we could also do away with any differentiation between sources of income. salaries should be the same class of income as dividends and capital gains, but present U.S. tax law eliminates taxation on dividend income and limits the rate on capital gain income (do you know many working-class people who make most of their income with capital gains or dividends?). it's an obvious tax-gift to the wealthy and is part of the class warfare of the rich upon the poor.

The change benefits the relatively wealthy, especially those with stock in their retirement accounts (say, the upper 50%). But it's in addition to income tax, so it's not obvious to me that it's wrong. (If I made $100 on capital gains, I would pay $10 in capital gains tax and $13.50 in income tax. If a wealthy person made $100 in capital gains, they would pay $10 in capital gains and $31.50 in income tax. My effective rate is 23.5%; theirs would be 41.5%.)

Simplicity gives all taxpayers a benefit (they spend less money or effort filing taxes), so I broadly support that. :)

 

[D H]

If I made $100 on capital gains, I would pay $10 in capital gains tax and $13.50 in income tax. If a wealthy person made $100 in capital gains, they would pay $10 in capital gains and $31.50 in income tax. My effective rate is 23.5%; theirs would be 41.5%.

Capital gains are not taxed as ordinary income. Long term capital gains are taxed at a low rate than ordinary income to (a) encourage capital investments and (b) to offset apparent but unreal gains that only result from inflation. If you are a cynic, you might want to add (c) the rich can afford to buy politicians who will vote for lower capital gains taxes.

 

[CRGreathouse]

Capital gains are not taxed as ordinary income. Long term capital gains are taxed at a low rate than ordinary income to (a) encourage capital investments and (b) to offset apparent but unreal gains that only result from inflation. If you are a cynic, you might want to add (c) the rich can afford to buy politicians who will vote for lower capital gains taxes.

OK, you're right about that; I had it wrong.

But still, the loss from inflation (as you mention) is significant. If I retired (early!) in 30 years, with 5% average inflation and 8% average stock return in that period, then I realize a 132% increase in investment but am taxed as if I realized a 906% increase.

 

[D H]

But still, the loss from inflation (as you mention) is significant. If I retired (early!) in 30 years, with 5% average inflation and 8% average stock return in that period, then I realize a 132% increase in investment but am taxed as if I realized a 906% increase.

The problem with the capital gains tax as it exists is that the formulae used do not directly account for this illusory gain from inflationary effects. "Long term" capital gains are anything held for one year or longer. The reduced rate vastly overestimates inflationary effects for stocks held for a few years but vastly underestimates inflationary effects for stocks held for a few decades. The laws as they stand discourage true long term investments. (One year is not a very long time.)

 

[baywax]

The company making 4 billion dollars a year makes much of that money using the infrastructure of a nation. This company uses the roads, rail, defense, security, airports, waterways, education from K to 12, coast guard and any number of hidden services provided by the tax dollar.

The self-employed citizen also uses this infrastructure, yet the usage is limited to the volume of business they are doing. So, doesn't it seem logical that the tax burden of the 4 billion dollar a year company reflect the amount of burden it places on the nation's infrastructure as would the $250,000 per year self-employed citizen's taxation?

An ethical taxation would take into account each individual's burden on the infrastructure of the nation in question. This could be done like an accounting exercise. The poor wouldn't be taxed much because their burden on the infrastructure is minimal. The tax money set aside for altruistic dispensation would be considered part of the infrastructure tax funding. Some would ask why and it should be obvious that these citizens are potentially part of the work force and productivity of the nation and should be maintained if not developed to become a productive part of the nation.

 

[CRGreathouse]

An ethical taxation would take into account each individual's burden on the infrastructure of the nation in question. This could be done like an accounting exercise. The poor wouldn't be taxed much because their burden on the infrastructure is minimal. The tax money set aside for altruistic dispensation would be considered part of the infrastructure tax funding. Some would ask why and it should be obvious that these citizens are potentially part of the work force and productivity of the nation and should be maintained if not developed to become a productive part of the nation.

So, in summary (again, correct me if I misread you):
1. The purpose of taxation is to increase the collective well-being
2. Ethical taxation involves taxing at a rate proportional to the benefit obtained from government spending (but see #3)
3. 'Lower taxes' for the poor (perhaps better to think of this as a benefit apart from taxes) are a service to the community, not the poor themselves except insofar as they are part of the community.

Interesting; this actually seems to work well.

 

[D H]

An ethical taxation would take into account each individual's burden on the infrastructure of the nation in question. This could be done like an accounting exercise.

The wealthy people in this country would like such a system much, much more than would you. You might want to re-evaluate your thinking as you are advocating a tax system that is much less progressive than is the current system, and may well be regressive. The upper middle class and higher receive zero benefit from the largest part of the federal government. The federal government spending on infrastructure proper is a tiny, tiny portion of the federal budget. Most infrastructure is provided at the local and state level. Those who currently pay the lion's share of the current income taxes would love your proposal.

 

[baywax]

So, in summary (again, correct me if I misread you):
1. The purpose of taxation is to increase the collective well-being
2. Ethical taxation involves taxing at a rate proportional to the benefit obtained from government spending (but see #3)
3. 'Lower taxes' for the poor (perhaps better to think of this as a benefit apart from taxes) are a service to the community, not the poor themselves except insofar as they are part of the community.

Interesting; this actually seems to work well.

Thank my lucky stars I was able to convey my slight understanding of taxation.

Where I'm right out of the loop is where DH has pointed out the short comings of a form of taxation where there are separate states, each with their own form of taxation.

Then there are the lopsided spending habits of any given administration and how their spending is influenced by various lobbyists. For example, large percentages of spending on military intervention in foreign lands and huge "bail outs" to specific and minority groups.

There is also the question of Social Security. But I think I've solved that question because we pay the elders a cheque of Tax Payers money and this offsets the burden they would have imposed on the productive offspring that they have raised for the community, society, the nation and the civilization. So, this act can be seen as another bolstering of infrastructure.

In America you also have the "Foundations" and the "Charities" and of course the "Organized Religions" picking up some slack with their donations and fund raising. But I don't think this should be used as an excuse by Government to slack off on its commitments to a progressive and bettering society. This is because the citizen has paid their tax to better their country, if someone else is doing so privately... all the better.

Take Canada for example. It is in the greater interest of the United States to hold missiles and defense systems whose range include Canada and Mexico in their security net. This is due to the proximity factor of these nations to the nation of the US. But who pays for these systems... the American People. The guy slinging meat patties at BK and the guy in his big brass bank. Both pay to protect the interests of their neighbour. Yet, this is a bit like fence building. When I build a fence between my neighbour and I, we both pay for the materials etc... because it is a fence for both sides. So, is that how the cost of your military prowess is shared? No. I think there must be some other arrangement.

 

[baywax]

The upper middle class and higher receive zero benefit from the largest part of the federal government.

I did try to explain that a person showing a high income is showing a high use of the national or state infrastructure by way of the industries they hold shares in (percentage of responsibility) or by their own industry. Therefore, through the magic of accounting, one could determine exactly how much tax they should be paying according to the quantity and quality of government services their holdings or their industry use.

 

[Dale]

The company making 4 billion dollars a year makes much of that money using the infrastructure of a nation. This company uses the roads, rail, defense, security, airports, waterways, education from K to 12, coast guard and any number of hidden services provided by the tax dollar.

That is true, but regardless of what tax you levy on a company they do not pay it, they only collect it.

 

[baywax]

That is true, but regardless of what tax you levy on a company they do not pay it, they only collect it.

Egads. This comes down to loopholes and requires the "R" word.. regulation. If the tax was not passed on to the consumer it would be much more effective!

This applies to the loopholes of every instance. My own, favorite Prime Minister, Paul Martin of the Liberal Party was the CEO of a huge shipping company. When sworn in as PM he transferred his position to his sons. For the years Paul Martin was PM he was parking his ships in Morocco to avoid owning a company in Canada and paying his taxes.

 

[Dale]

In America you also have the "Foundations" and the "Charities" and of course the "Organized Religions" picking up some slack with their donations and fund raising. But I don't think this should be used as an excuse by Government to slack off on its commitments to a progressive and bettering society.

Why not? The problem with the government involvement in such activities is that the government does this through coersion and its police power. A charity cannot come to your house, sieze your property, and drag you away from your family at the point of a gun, but the government can. A gift from a charity is seen as generosity and is accepted with gratitude, but the same benefit coming from the government replaces generosity with coersion and replaces gratitude with entitlement.

IMO, anything that can be done without coersion and violence should be done without coersion and violence. Government ruins everything good about charity.

Egads. This comes down to loopholes and requires the "R" word.. regulation. If the tax was not passed on to the consumer it would be much more effective!

It has nothing to do with loopholes. The taxes are part of the cost of the product and ultimately the consumer pays for the whole cost of the product.

 

[baywax]

It has nothing to do with loopholes. The taxes are part of the cost of the product and ultimately the consumer pays for the whole cost of the product.

So if I'm working in a factory I'll just defer my taxes to the owner? Don't think so. Why can a company defer its taxes to the consumer yet the consumer has no one to defer their taxes to?

This is a loop hole.

 

[baywax]

IMO, anything that can be done without coersion and violence should be done without coersion and violence.

Well, there are Charities and there are charities. Some of them use coersion by flashing crying skinny babies with flies in their eyes to get you softened up. Some of them are run by the mafia and use other techniques to get your money. Some of them have woven such a load of BS for the last 2000 years that they've programed a large percentage of the population's genes to give them money and land. You can hope for less violence etc... but its only going to happen when EDUCATION is universal and free to the citizens of your country. With education comes independence and much less reliance on guns and threats because the alternatives to these conditions should be clearly conveyed during a good, well TAX funded education.

 

[D H]

So if I'm working in a factory I'll just defer my taxes to the owner? Don't think so. Why can a company defer its taxes to the consumer yet the consumer has no one to defer their taxes to?

This is a loop hole.

Federal and state antitrust laws make it illegal to go into collusion with other companies, price their products predatorially, or artificially raise prices to take advantage of a crisis such as a hurricane. Short of these legal constraints, a company can charge whatever it wants for its products.

There is one very important law that I omitted in the above list: The law of survival. A business has to charge more for the products it makes or services it renders than it costs to make the products or render the services. Punishment for failure to obey this basic business law is swift and final because businesses that do not follow it quickly cease to exist.

If you raise the taxes on a business they will either pass those taxes on to their customers or they will cease to exist. The only loophole here is the hole in some loopy people's heads who do not understand this final law.

 

[russ_watters]

So if I'm working in a factory I'll just defer my taxes to the owner? Don't think so. Why can a company defer its taxes to the consumer yet the consumer has no one to defer their taxes to?

This is a loop hole.

Actually, your company does pay your taxes insofar as if you didn't pay taxes, the company could pay you less because you could afford to live on less.

Either way, the one forking over the money is the one paying the taxes. DH is right, this is a pretty simple fundamental principle of economics.

 

[rbj]

If you raise the taxes on a business they will either pass those taxes on to their customers or they will cease to exist.

or they will accept a smaller profit margin (a negative profit margin cannot be acceptable on a long term unless the business is huge and has vast assets).

or they will find other areas to cut cost.

but alternatively, they can pass the increased tax burden on to their customers if the market will let them.

BTW, DH, i did read your other posts in this thread.

 

[CRGreathouse]

Either way, the one forking over the money is the one paying the taxes. DH is right, this is a pretty simple fundamental principle of economics.

No. The party 'actually' paying the taxes is determined by elasticity of demand, not whose pocket the money comes from. If a new tax is imposed on a lifesaving medicine selling for $10, the company producing it can pass the tax along to the consumer entirely. If a new tax is imposed on a product (with high enough margins!) which has perfect substitutes, the company will eat the whole tax (since any price increase will induce customers to substitute).

 

[CRGreathouse]

An ethical taxation would take into account each individual's burden on the infrastructure of the nation in question. This could be done like an accounting exercise. The poor wouldn't be taxed much because their burden on the infrastructure is minimal. The tax money set aside for altruistic dispensation would be considered part of the infrastructure tax funding. Some would ask why and it should be obvious that these citizens are potentially part of the work force and productivity of the nation and should be maintained if not developed to become a productive part of the nation.

The wealthy people in this country would like such a system much, much more than would you. You might want to re-evaluate your thinking as you are advocating a tax system that is much less progressive than is the current system, and may well be regressive. The upper middle class and higher receive zero benefit from the largest part of the federal government. The federal government spending on infrastructure proper is a tiny, tiny portion of the federal budget. Most infrastructure is provided at the local and state level. Those who currently pay the lion's share of the current income taxes would love your proposal.

1. baywax may feel that the current tax system is unfair to the wealthy, regardless of what system baywax might benefit from.
2. Are you claiming that only a small minority of the federal budget benefits the upper and middle classes?

 

[CRGreathouse]

Where I'm right out of the loop is where DH has pointed out the short comings of a form of taxation where there are separate states, each with their own form of taxation.

Deciding what is fair would be a first step toward judging the rightness of taxation at any level, federal or state/local.

Then there are the lopsided spending habits of any given administration and how their spending is influenced by various lobbyists. For example, large percentages of spending on military intervention in foreign lands and huge "bail outs" to specific and minority groups.

These things always feel wrong, but one of the points of this exercise (for me!) is to find out 'why' they feel wrong.

 

[CRGreathouse]

I can think of several justifications for taxation, personally. I'll just throw these out there for comment:
1. Efficiency: A government may be able to provide a service that would be (much) more costly at an individual level. An example might be national defense: protecting my own property might require two armed guards each at $45,000 per year, which is already much more than my yearly taxes.
2. Justice: A government might determine that some programs should be funded even if they are socially inefficient in some sense. Prosecuting a murder may cost society more than the lost productivity of the murder victim, but might be judged worthy.
3. Redistribution: Taking money from the wealthy to give to the poor could be sensible on either ethical or pragmatic grounds. The injustice of the 'theft' is equal to the amount of the redistributive tax plus the deadweight loss, while the poor benefit by the amount of the redistributive tax minus the administrative costs.

The value or cost of paternalism (the "nanny state") should also be considered.

 

[baywax]

Federal and state antitrust laws make it illegal to go into collusion with other companies, price their products predatorially, or artificially raise prices to take advantage of a crisis such as a hurricane. Short of these legal constraints, a company can charge whatever it wants for its products.

There is one very important law that I omitted in the above list: The law of survival. A business has to charge more for the products it makes or services it renders than it costs to make the products or render the services. Punishment for failure to obey this basic business law is swift and final because businesses that do not follow it quickly cease to exist.

If you raise the taxes on a business they will either pass those taxes on to their customers or they will cease to exist. The only loophole here is the hole in some loopy people's heads who do not understand this final law.

As Greathouse has pointed out... if you shuffle the cost of taxes on to your consumer... you lose the consumer to another product or manufacturer. So, its up to the company to decide what they will eat. The cost of the tax or the cost of hurting their customer. Not so loopy. But that said, a regulation that allowed a certain percentage of a tax to be passed along to the consumer may work... and ensure that the citizen is not carrying the entire burden of responsibility that the company is responsible for.

 

[baywax]

Deciding what is fair would be a first step toward judging the rightness of taxation at any level, federal or state/local.



These things always feel wrong, but one of the points of this exercise (for me!) is to find out 'why' they feel wrong.

They feel wrong because they are the results of a "first in your face / first serve" system.

You can call it nepotism or favoritism when there are certain bodies or industries that have the ear of government. Its like a classroom where the people in the front row get all the attention and the benefits from that while the back of the class may catch up in six months.

There are other ways to conduct a government and one comes to mind where the interested parties are invited to sit at a round table. Here there is a chance for each individual's claims to be heard on an equal footing. This approach also allows for the comparison and balancing of each claim to the tax dollars, thus, theoretically producing a balanced result. And balanced = efficient for the most part.

If you've ever seen some of the Canadian news, sometimes you see the summit meetings of the Premiers of each province and territory with the Prime Minister. They are usually seated in a round table setting and they are all lobbying for their province's health care money, road, transit, etc... The balance is achieved somewhat, when the earnings of each province or GPP is brought into question because each province has its own taxation ritual it performs on its citizens.

 

[CRGreathouse]

There are other ways to conduct a government and one comes to mind where the interested parties are invited to sit at a round table. Here there is a chance for each individual's claims to be heard on an equal footing. This approach also allows for the comparison and balancing of each claim to the tax dollars, thus, theoretically producing a balanced result. And balanced = efficient for the most part.

Actually, I don't think so.

Here's an example. Suppose it's a large table and heads of 100 major companies (from 80 different industries) come to discuss their own situations and lobby for policies that will help their companies (and thus their employees). A natural result would be protective tariffs on those 80 industries, making all of the companies more profitable. But companies not represented are squeezed -- many of their raw goods are now more expensive -- and customers are likewise squeezed: many products are significantly more expensive, and almost all of the rest are somewhat more expensive. If they're working in one of the lucky industries their raise may be enough to to combat the second effect but not the first.

Some policies are like this: inefficient, but they distribute the hurt over many people and the benefit over few. I feel that there should be safeguards in place against this, especially since it's so common.

 

[Dale]

Some policies are like this: inefficient, but they distribute the hurt over many people and the benefit over few. I feel that there should be safeguards in place against this, especially since it's so common.

US sugar tarriffs are a perfect example.