Tax on Income/Wealth and Fairness

[TheStatutoryApe]

Mmm...maybe the technical definition, but these days days, if you want to live the "hollywood" lifestyle, you need at least $5 million in liquid assets and more around $250,000 per month in disposable income.

Have you been hitting the glass ****?! I live in the state with one of the highest minimum wages, highest state revenues, and the biggest economy in the union but I would be more than welcome to make half of what you consider 'middle class'. Even a quarter of it. I could live quite comfortably on it I assure you.

However I do agree on your assessment that making the 'rich', who already pay the most, pay more isn't exactly fair or productive.

 

[vociferous]

With the median price of a house being about $600,000 or more around here, I would think that, at least for this geographical area, the line between upper middle class and upper class is drawn at about $200,000-$250,000 a year for an individual and maybe $250,000-$350,000 for a family, depending on their assets.

 

[Gokul43201]

However I do agree on your assessment that making the 'rich', who already pay the most, pay more isn't exactly fair or productive.

You need to quantify exactly what you mean by this. Does "more" refer to the actual tax owed ($) or the tax rate(%)?

 

[D H]

However I do agree on your assessment that making the 'rich', who already pay the most, pay more isn't exactly fair or productive.

I'm going to forget the productivity issue here and only talk about fairness. Fairness is not a good tax metric. It begs the question of what does fair mean? It means everything from taxing every single person the exact same dollar amount to taxing the rich and the rich only depending on one's political leanings.

To me an even bigger problem with fairness is: How can something inherently unfair ever be made fair? Taking my money isn't fair, period. The government legally steals money from those who make the money. I am not advocating getting rid of taxes. Modern society needs a fairly extensive government, and that means taxes. Taxes are a necessary evil of modern life.

An unfairness metric is much more measurable and quantifiable than is a fairness metric. It hurts when the government takes money from people. The pain of taxes should be spread around evenly, and (almost) everyone should participate. Taking $500 per year from someone who makes $10,000 per year hurts that person a lot even though the tax rate is a paltry 5%. Someone making that little money has no money to spare. That 5% comes from the basics of life.

Taking 5% from a millionaire doesn't hurt the millionaire much at all. The government needs to dig much, much deeper into the millionaire's bank account to make the millionaire feel the same pain as the poor person taxed at 5%. A sharply graduated tax makes a whole lot of sense when you look at taxes from the perspective of taxes being inherently unfair.

 

[humanino]

However I do agree on your assessment that making the 'rich', who already pay the most, pay more isn't exactly fair or productive.

You need to quantify exactly what you mean by this. Does "more" refer to the actual tax owed ($) or the tax rate(%)?

Well, if I may, "more" will be possible to define unambiguously for sure, and we can even guess what is meant. However, "fair and productive" is at the heart of the argument, and would admit only political model definitions.

As far as I can naively tell, the trivial tax definition would be in absolute value, everybody pays the same. A first "fairness" adjustement is to define taxes in % of the income. A second adjustement would be to consider a "threshold for living", say of $1000 per month (then location dependent), so that richer people actually pay more than the previous naive linear (%) definition. Well, as in tax = slope*(income-threshold), if you set threshold=0 you actually increase the tax for anybody... Finally, re-adjustements can be considered, on the basis of what every individual contribute to society. Here it becomes pretty complicated. One could also insist that the tax tends to a finite value as the income goes to infinity I guess. But that would probably be more unfair than re-adjustement.

At least, this is schematically how it works in France.

 

[drankin]

I'm going to forget the productivity issue here and only talk about fairness. Fairness is not a good tax metric. It begs the question of what does fair mean? It means everything from taxing every single person the exact same dollar amount to taxing the rich and the rich only depending on one's political leanings.

To me an even bigger problem with fairness is: How can something inherently unfair ever be made fair? Taking my money isn't fair, period. The government legally steals money from those who make the money. I am not advocating getting rid of taxes. Modern society needs a fairly extensive government, and that means taxes. Taxes are a necessary evil of modern life.

An unfairness metric is much more measurable and quantifiable than is a fairness metric. It hurts when the government takes money from people. The pain of taxes should be spread around evenly, and (almost) everyone should participate. Taking $500 per year from someone who makes $10,000 per year hurts that person a lot even though the tax rate is a paltry 5%. Someone making that little money has no money to spare. That 5% comes from the basics of life.

Taking 5% from a millionaire doesn't hurt the millionaire much at all. The government needs to dig much, much deeper into the millionaire's bank account to make the millionaire feel the same pain as the poor person taxed at 5%. A sharply graduated tax makes a whole lot of sense when you look at taxes from the perspective of taxes being inherently unfair.

So you are calling tax a form of pain that should be equally felt regardless of income. I don't agree. I believe a flat tax percentage, regardless of income is where we should be. To tax someone more because he/she is more successful than another is punishing accomplishment. That is not and should not be the role of the government. It's counterproductive.

 

[humanino]

I believe a flat tax percentage, regardless of income is where we should be. To tax someone more because he/she is more successful than another is punishing accomplishment.

There is no such thing as punishing accomplishment. This is a fake concept, invented to argue against any tax modification. It is clear that 5% of $10,000 versus 5% of $1M cannot compare in terms of life quality. In one case you are taking kid's food out of $10,000, in the other case you might take yet another brand new fancy car. It is beyond my understanding that one can fail to relate to that.

 

[mheslep]

This arguable assertion on accomplishment

There is no such thing as punishing accomplishment. This is a fake concept, invented to argue against any tax modification.

is followed by a non-sequitor statement on your value judgements:

It is clear that 5% of $10,000 versus 5% of $1M cannot compare in terms of life quality. In one case you are taking kid's food out of $10,000, in the other case you might take yet another brand new fancy car. It is beyond my understanding that one can fail to relate to that.

Given to punish means: "to impose a penalty on ..." then I think it is reasonable to say that, if the act can be articulated, then I posit any imaginable human action can be punished. I certainly see accomplishment punished frequently.

 

[D H]

So you are calling tax a form of pain that should be equally felt regardless of income. I don't agree. I believe a flat tax percentage, regardless of income is where we should be. To tax someone more because he/she is more successful than another is punishing accomplishment. That is not and should not be the role of the government. It's counterproductive.

Fortunately, just as few people agree with you as agree with those on the far left who think Sweden's tax rates for the rich are too low.

Since you don't buy my pain argument, I'll make a cost/benefits argument for a graduated tax. A good chunk of our government expenditures go to national defense. Who benefits? The poor? How? The benefit is roughly proportional to wealth, and wealth is a very nonlinear function of income. The other big chunk goes to poverty programs. I'll leave that for last.

Who benefits from roads? I've heard ludicrous arguments that the rich don't drive anymore than anyone else. That argument ignores that the rich benefit from having employees who can drive to work, from having truckers who can ship the goods the empoyees make, and from having customers who are able to drive to the shops where the goods are sold. Corporate ownership is similarly non-linear with respect to income. The same goes for government funded research. The rich benefit disproportionately with respect to income.

Poverty programs involve the government out-and-out giving our money to others without permission. There are big parts of this I don't agree with, but that is not germaine to this discussion. There is little benefit from these programs to those not on assistance. The only benefit I can see is akin to the friendly mobster who offers the local store owner protection from thugs (his thugs). Without assistance, the poor might well hold an uprising. Poverty programs are a government sponsored protection racket. The rich have disproportionately more to less, and so the shakedown should be greater.

I have not yet addressed the fact that we all are a very priviledged people in that we live in a society where a poor person can become rich. The rich "owe" society something for their elevated economic status. This extra something is an even stiffer graduation on the tax rate. Anything less would not be fair.

This fairness approach is admittedly an ugly way to look at things. It exposes quite a few warts. Maybe that's a good thing. There are other ways to expose this ugly side of the government-sponsored shakedown.

I like my spread-the-pain approach. All but those in the most abject poverty would pay some tax. Even a person currently on welfare who owns television sets and a nice car or two should be contributing to the society. It would have to be a pittance, but they should contribute something. It would make them feel more a part of society and make them appreciate (through some pain and suffering) what society has to offer.

 

[humanino]

followed by a non-sequitor statement

"non-sequitur". "o" and "u" are not even next to each other. Besides, the statement does not follow, those two sentences are independent.

Honestly, I do not really care in this discussion, because I feel a lack of intellectual honesty. Argument for the sake of argumentation can be fun, but on this topic it does not appeal to me.

 

[mheslep]

...Besides, the statement does not follow, those two sentences are independent.

Indeed they are, hence the term which in the latin means 'it does not follow'. Following a wild assertion immediately with unrelated material is pretense, or as you say:

a lack of intellectual honesty.

Argument for the sake of argumentation can be fun, but on this topic it does not appeal to me.

Another drive-by "you people are wrong and insincere, but I'm not interested, bye" post, I can do with out.

 

[humanino]

you people are wrong and insincere

Look up the majority of tax laws in civilized countries. There is a threshold below which one does not pay taxes, and the amount of tax you pay is roughly proportional to the amount you make above this threshold. I am not making my point out. My point was as simple as this, and anything on top of this simple rule is an adjustement.

Whithin this rule, it means that if you make twice money, you will pay more than twice taxes. Period.

 

[quadraphonics]

The rhetoric about "punishing accomplishment" is kind of ridiculous. It presupposes that people who are wealthy must have worked harder than others and, as a corollary, that the poor are lazy and deserve to suffer. It presents society as an idealized meritocracy, ignoring all of the familial, social and cultural aspects of wealth accumulation, in a contemptable attempt to paper over the fact that what's being called for is an elitist system that ruthlessly exploits the weak and marginalized. It's all straight out of Atlas Shrugged, which some people are so myopic as to actually consider a good book with worthwhile ideas, rather than the bloated, clumsy inverted-Marxist soap opera that it is.

 

[humanino]

Since I've been pushed, I'll quote wikipedia

Tax rates may be progressive, regressive, or flat. A progressive tax taxes differentially based on how much has been earned. For example, the first $10,000 in earnings may be taxed at 5%, the next $10,000 at 10%, and any more income at 20%. Alternatively, a flat tax taxes all earnings at the same rate. A regressive income tax may tax income up to a certain amount, such as taxing only the first $90,000 earned. A tax system may use different taxation methods for different types of income. However, the idea of a progressive income tax has garnered support from economists and political scientists of many different ideologies, from Adam Smith in The Wealth of Nations to Karl Marx in The Communist Manifesto.

 

[WheelsRCool]

The rhetoric about "punishing accomplishment" is kind of ridiculous. It presupposes that people who are wealthy must have worked harder than others and, as a corollary, that the poor are lazy and deserve to suffer. It presents society as an idealized meritocracy, ignoring all of the familial, social and cultural aspects of wealth accumulation, in a contemptable attempt to paper over the fact that what's being called for is an elitist system that ruthlessly exploits the weak and marginalized. It's all straight out of Atlas Shrugged, which some people are so myopic as to actually consider a good book with worthwhile ideas, rather than the bloated, clumsy inverted-Marxist soap opera that it is.

I disagree completely.

Yes, most people who have a net worth of $1 million or more, did in fact work for it. Inherited wealth makes up a small portion of the wealth in this country.

And no, it does not presuppose that the wealthy people worked any harder. It presupposes that they worked more productively.

No one cares how "hard" one works. There are plenty of poor people who work very hard each day. What matters is what you PRODUCE. S/he who produces the most gets paid the most.

You have to work hard AND productively. Taking wealth by force from those who work both hard and productively, just to keep things "fair," is inherently very unfair. Someone who is wealthy will always be hurt less by taxes than someone who is poor. That is what provides the incentive for people to work more productively. A janitor can work hard, but that's an easily replaceable job. A computer engineer isn't, and thus will get paid more.

And yes, America is a great deal meritocracy. No, it does not "exploit" the "weak and marginalized." Those who truly cannot take care of themselves can be aided by the State and/or charities, and for others who just truly get knocked on their butts, that's what charities and churches and so forth are supposed to be for. This isn't quite true nowadays with all the government social programs out there though.

It is the high-taxation policies that punish accomplishment and wealth creation that create a truly elitist system, because those who already have made it, who already own big businesses, see their wealth become better protected, because fewer competitors in business will come about. People won't become entrepreneurs as much when such a profession is punished heavily. This thus makes those already wealthy a very secure and priviledged elite, whose wealth is protected from taxes in secure trusts and so forth.

This is how things were at the end of the 1970s. There was no capital to start businesses, and the stock and bond markets were practically destroyed. The highest tax rate was 70% and capital gains were at 50%. Most wealthy thus kept their wealth in safe trusts and avoided the stock and bond market (s) completely.

Remember, the average American is very, very wealthy, on a global scale. Americans are only like 5% of the population, yet even the poorest Americans live a standard of living that is considered fabulous by most world standards, because they are so poor.

I am sure the guy who wakes up in a poverty-stricken village and goes out and collects firewood for hours, just to provide some heat for his family, works as hard as the average middle-class guy who gets up and goes to work. The difference is that the American worker PRODUCES a lot more, and thus is ultimately paid far more.

Americans are the most productive workers in the world. We produce more wealth than anyone. So we have among the highest standard of living when measured by GDP per capita (I think Switzerland's is higher; Norway's is 10% higher, but stuff there costs about twice as much as it does here, and also about 25% of Norway's GDP is from oil I believe).

 

[quadraphonics]

Yes, most people who have a net worth of $1 million or more, did in fact work for it. Inherited wealth makes up a small portion of the wealth in this country.

Inherited wealth, as in actual inherited estates, is not the point. Having parents who can afford to raise you in a stable environment with good schools, proper nutrition and medical care, and then send you to a good college (and probably hook you up with some job contacts when you finish) is. These factors have much more determinative power on a person's income than their relative work ethic, and they are completely outside of individual control. Nobody chooses to be born into a family of lesser means.

Incidentally, I find it's almost always people who are from advantaged backgrounds that go in for this "society's a meritocracy and I don't owe anyone anything" line of thinking. Clearly, they're insecure about the numerous unearned advantages that underpin their lives, and desperately want to believe that they really do deserve the easier life that they were given.

And no, it does not presuppose that the wealthy people worked any harder. It presupposes that they worked more productively.

Same difference. You're still attributing wealth exclusively to individual merit. But that is only one factor in the real world; we do not live in an anarchic utopia where each individual is master of their destiny. Various mechanisms for large-scale control exist in all modern societies, and to ignore this is facile (although it is likewise facile to overemphasize them; a Communist I'm not).

Taking wealth by force from those who work both hard and productively, just to keep things "fair," is inherently very unfair.

So it's fair to take wealth from people who work hard and were deprived of the opportunity to be more productive? Do you really think that everyone has an equal opportunity to attain a high level of productivity? And, if not, doesn't that imply that those who did have such opportunities have a responsibility to help improve the lots of the less fortunate?

And yes, America is a great deal meritocracy. No, it does not "exploit" the "weak and marginalized."

Who said anything about America? Not me. In particular, the comments about exploitation applied to the hypothetical system that wild-eyed libertarians tend to promote. Thankfully, America has been wise and mature enough not to go in for their hare-brained plans, and instead constructed a society with a responsible combination of market incentives, social welfare and progressive policy.

It is the high-taxation policies that punish accomplishment and wealth creation that create a truly elitist system, because those who already have made it, who already own big businesses, see their wealth become better protected, because fewer competitors in business will come about. People won't become entrepreneurs as much when such a profession is punished heavily. This thus makes those already wealthy a very secure and priviledged elite, whose wealth is protected from taxes in secure trusts and so forth.

I'm not going to address this fantasy, other than to point out that the subject is progressive taxation, which is a different issue from whether taxes are high or low as such. Although, as far as that goes, corporate taxes have long been fairly high in the United States (they're much lower in Europe, for example).

Americans are the most productive workers in the world. We produce more wealth than anyone. So we have among the highest standard of living when measured by GDP per capita (I think Switzerland's is higher; Norway's is 10% higher, but stuff there costs about twice as much as it does here, and also about 25% of Norway's GDP is from oil I believe).

You forgot Qatar, Luxembourg, Malta, Brunei and Cyprus. And the GDP figures are measured in PPP terms, which means that the differing costs of living have already been factored in.

 

[WheelsRCool]

Inherited wealth, as in actual inherited estates, is not the point. Having parents who can afford to raise you in a stable environment with good schools, proper nutrition and medical care, and then send you to a good college (and probably hook you up with some job contacts when you finish) is. These factors have much more determinative power on a person's income than their relative work ethic, and they are completely outside of individual control. Nobody chooses to be born into a family of lesser means.

These things do have some effect, but this excuse is over-used. Whether people come from good backgrounds or bad, both can go to good colleges and get a decent education ultimately.

You cannot enforce equality with something like this. If you decide to give specific benefits to the "under-priviledged" people, you are discriminating against those who come from good middle-class families and may have worked just as hard to go to school.

Incidentally, I find it's almost always people who are from advantaged backgrounds that go in for this "society's a meritocracy and I don't owe anyone anything" line of thinking. Clearly, they're insecure about the numerous unearned advantages that underpin their lives, and desperately want to believe that they really do deserve the easier life that they were given.

I disagree there completely. The people who seem to most want to undermine capitalism usually are the ones who come from priviledged backgrounds. People who come from poor backgrounds who work hard do not have an entitlement mindset.

Many of these "poor" you talk of are the recipients of numerous truly unearned privildges. For example, a good chunk of the hardworking middle-class doesn't have healthcare. Yet if you are like my cousins, who both drop out of high school and have a child, you get a "free" apartment and "free" healthcare (and it's good healthcare!). If you work hard as my sister does, and poke your eye (as she did) and have trouble affording the prescriptions, tough. If you work hard and aren't "poor" enough to have welfare but can't afford fuel for heat, tough. Yet if you sit on your butt like my aunt and are supported by the state, they will give you fuel for "free."

To me, it is much of the so-called "under-priviledged underclass" who are entitlement-minded. As for those who come from lower middle-class families, you are being entitlement-minded if you expect that you should be given all the priviledges that the upper middle-class person has from their family. Doing such a thing would be a form of discrimination. We do not have a society based on equal outcome. It's equal opportunity.

You could argue that the poorer person can't have the same "opportunity" as the wealthier person when they graduate high school, regarding colleges, but college from high school is still a form of outcome. If you try to "enforce equality," you end up making things more un-equal.

The idea is you go out and make yourself as wealthy as you can, which is based on choices and work ethic. If you decide to take a lower-paying job and then have children, you have no right to complain that those children do not have the same priviledges as the children of the guy who became a high-paid lawyer.

Same difference. You're still attributing wealth exclusively to individual merit. But that is only one factor in the real world; we do not live in an anarchic utopia where each individual is master of their destiny. Various mechanisms for large-scale control exist in all modern societies, and to ignore this is facile (although it is likewise facile to overemphasize them; a Communist I'm not).

It's mostly individual merit. I am not any believer in anarchy. Anarchy wouldn't work. How would you protect your intellectual property for businesses and inventions and so forth? How would you solve disputes without a legal/court system? Capitalism can only function under the rule of law. Ayn Rand I believe argued for no government; she was a believer in capitalism, but I think she did not understand enough about capitalism to know that government is a necessary evil.

So it's fair to take wealth from people who work hard and were deprived of the opportunity to be more productive? Do you really think that everyone has an equal opportunity to attain a high level of productivity? And, if not, doesn't that imply that those who did have such opportunities have a responsibility to help improve the lots of the less fortunate?

Most people who don't work productively, that's they're fault. Not the government's, not society's, not the neighbor's, yada yada it's on you. And yes, most all people have an equal opportunity to attain a higher-level of wealth, especially these days with the invention of the Internet. These aren't the old days where you had to be born into the elite circles to make it big on Wall Street or become a corporate CEO. It also doesn't take years to build a big company like it used to. That's why the number of wealthy people has skyrocketed in recent years.

And yes, I think wealthy people have a responsibility to help improve the lot of those less fortunate. That is one of the primary arguments for few government programs; because private charity takes over. One of the reasons American universities are the besti s because of private charitable giving. The 19th century saw the largest outpouring of private charity in history.

For example, Andrew Carnegie was worth about the modern equivalent of $300+ billion. He funded the construction of over one THOUSAND public libraries. Rockefeller as well gave massive amounts to charity. Welathy from both sides of the political isle contribute lots to charity. Hip-Hop stars, George Soros, Bill Gates, now Warren Buffett, Steve Schwarzman, etc...and many others. Charity is a very important component of a free society, because it is another excuse to keep the government at bay.

Wealthy people should not have their wealth confiscated by force for big government programs, but such people at the same time should share their wealth through charities and churches and so forth.

Who said anything about America? Not me. In particular, the comments about exploitation applied to the hypothetical system that wild-eyed libertarians tend to promote. Thankfully, America has been wise and mature enough not to go in for their hare-brained plans, and instead constructed a society with a responsible combination of market incentives, social welfare and progressive policy.

IMO, most of the "social welfare" programs of America are what have caused so much of the poverty that currently exists in this country. Poverty skyrocketed with the Great Society programs of the 1960s.

Having said that, these Libertarians who want no government and expect us all to live in our homes and grow our own food and all that, IMO, are living in a fantasyland.

As I said above, you MUST have government. One of the reasons capitalism struggles to get started in nations that convert from socialism to capitalism is because capitalism requires a proper legal system, financial system, political system, and constitution. As of now, America has all these, but it was a bumpy road the first few centuries occasionally!

I'm not going to address this fantasy, other than to point out that the subject is progressive taxation, which is a different issue from whether taxes are high or low as such. Although, as far as that goes, corporate taxes have long been fairly high in the United States (they're much lower in Europe, for example).

It is far from any fantasy. This can be shown by the performance of the European economies and the american economy when applying such policies. You want to create a true priviledged elite, then create taxation and regulation policies that stifle entrepreneurship and punish wealth creation.

You forgot Qatar, Luxembourg, Malta, Brunei and Cyprus. And the GDP figures are measured in PPP terms, which means that the differing costs of living have already been factored in.

Okay.

 

[grant9076]

These factors have much more determinative power on a person's income than their relative work ethic, and they are completely outside of individual control.

I am not sure that I agree completely with this statement. In fact, I do not agree with it at all. I was born in a third world country and came here as a young teenager with little more than the shirt on my back. To say that our family was low income was an understatement. The main reason why I am now an airline pilot is because I worked my a$$ off for it. Also, when my parents found out that I wanted to fly airplanes, they were livid. They made it abundantly clear in their words and actions that they hope that I never make it.

In addition, my brother who is now a millionaire had to work extremely hard for that too. In fact, all of the rich people that I personally know had to work extremely hard to get there. This reinforces the saying that you have to do work that others will never do if you want to have privileges that others will never have. I am sure that there are exceptions to this rule but I do not personally know of any.

On another note, I believe that the person who is most likely to be hurt by the progressive income tax is the average man/woman who has to work a second job in order to deal with a financial hardship. The primary reason for working a second job is to have a higher income, and the progressive income tax system will penalize the person for working harder. I personally believe that it is terribly unfair to that person. Frankly, it is similar to penalizing a student who works harder to get a better grade.

 

[drankin]

I look at it this way. Have a flat tax rate across the board and quit squabling about who should be taxed more or less. It's a completely rediculous wast of time! That time should be spent on how to efficiently SPEND THE TAX MONEY. The US Govt gets PLENTY of money through taxes. PLENTY! We should be more concerned on HOW it is spent than WHO pays what! As it is now, there are plenty of tax breaks for us regular middle class and lower class people. Those with large salaries pay larger taxes. Redistributing wealth is not the job of the government, it's the job of capitalism with a free society! Let it work as it has and regulate where needed to prevent fraud and corruption. That's it!

 

[D H]

On another note, I believe that the person who is most likely to be hurt by the progressive income tax is the average man/woman who has to work a second job in order to deal with a financial hardship. The primary reason for working a second job is to have a higher income, and the progressive income tax system will penalize the person for working harder. I personally believe that it is terribly unfair to that person. Frankly, it is similar to penalizing a student who works harder to get a better grade.

Assuming that whatever changes made to the tax system are revenue-neutral, a flat tax will hurt that average person even more. The wealthy currently pay a disproportionate share of their income because we do have a mildly progressive income tax. The wealthy will benefit immensely from a flat tax. A flat tax is an immense transfer of the tax burden from the wealthy to the upper middle and middle classes disguised under the guise of fairness. The marginal tax rate for a middle class person working two jobs will be much larger under a flat tax than under a progressive tax.

 

[mheslep]

...So it's fair to take wealth from people who work hard and were deprived of the opportunity to be more productive? Do you really think that everyone has an equal opportunity to attain a high level of productivity? And, if not, doesn't that imply that those who did have such opportunities have a responsibility to help improve the lots of the less fortunate?...

... Various mechanisms for large-scale control exist in all modern societies, and to ignore this is facile (although it is likewise facile to overemphasize them; a Communist I'm not).

Well the line of discussion above is keeping very close company with 'from each according to their means, to each according to their needs'.

 

[grant9076]

Assuming that whatever changes made to the tax system are revenue-neutral, a flat tax will hurt that average person even more.

I do not know of any truly revenue-neutral tax changes or tax systems and I don't think that any sane person would want to live in an economy where there is one. Here is why:

If there is a down turn in the economy, then taxes would have to be raised in order to keep revenue the same. This would result in less spending money for businesses as well as for potential customers which would mean less jobs and a further down turn. It would be a quick way to have an economic collapse.

We must remember that businesses are the engines that drive economies and they do a better job if they are successful. Punishing businesses and people for being successful is extremely counter productive to an economy.

On the other hand, if the person/entity who makes $200,000 pays twice as much as the one who makes $100,000 (flat tax), more money would be available to either expand or to purchase more goods and services. The result is more jobs which means more customers for businesses etc. In addition, the government will actually collect more overall revenue and will pay less unemployment compensation. It is the flow of money and not the mere presence of it which makes a prosperous economy.

 

[D H]

I do not know of any truly revenue-neutral tax changes or tax systems and I don't think that any sane person would want to live in an economy where there is one. ...

Grant, you apparently don't know what "revenue neutral" means. Let's suppose we do switch to a flat tax. What is the correct rate? 5%? 50%? Everyone would jump at the chance of paying a mere 5% tax rate. The federal government would have to make massive cuts because this drastically cuts the revenue to the government. The only ones who would like a 50% flat tax rate would be the federal budget planners. A 50% rate would leave the federal government flush with money. The revenue-neutral flat tax rate is that rate that yields exactly the same total payments to the government as does the current system. Any proposed tax change must be revenue-neutral (in theory) because without a revenue neutral change you are comparing apples and oranges.

 

[grant9076]

Any proposed tax change must be revenue-neutral (in theory) because without a revenue neutral change you are comparing apples and oranges.

Theory is one thing. In reality, there are such things as tax cuts which are often part of tax changes (as part of economic stimulus packages).

 

[Astronuc]

The previous posts have been moved to a new thread.

Taxes have been part of history. If one looks at the Roman empire, taxes were collected primarily to maintain the military and buy political influence, and in some cases pay tribute to dissuade military attacks. Back then it was the emperor/king who was the primary benefit of taxes, but the government bureaucrats also benefitted according to rank. The tax collectors certainly benefitted.

One has to ask - what is the purpose of taxes? Afterall, taxes are a power provided by the US Constitution, and state constitutions.

 

[D H]

Theory is one thing. In reality, there are such things as tax cuts which are often part of tax changes (as part of economic stimulus packages).

Tax cuts are typically implemented as minor changes to the existing taxation scheme. The baseline for a major modification or complete revamping of the taxation scheme is a revenue neutral scheme. Doing anything else begs the question: Why not just keep the existing scheme? For example, suppose the federal government switches to a flat tax that reduces the total revenues to the government by a staggering amount. The vast majority of Americans would be much better off if the government raised the standard deduction by a large amount.

The Fair Tax (a gross misnomer IMHO) claims revenue neutrality right at the top of its web page. The flat tax as proposed by Dick Armey claimed to be revenue neutral (this claim was disputed by many economists). Devising a revenue neutral scheme is essential if one wants to compare apples to apples. One reason Armey's flat tax never went anywhere because it was not revenue neutral.

So, what would a revenue neutral flat tax or fair tax do to the average citizen? The answer is quite simple: It would be devastating. How could it be anything but?

========================================================

Some final points:

(1) We are supposed to post references in the P&WA section. I cannot find any science-based references on the tax fairness issue. What I can find a lot of are purely emotional arguments. "All citizens should be treated the same" as an argument for the flat tax. "The rich owe everyone else for their vaunted stature" as an argument for an extremely progressive tax. Has anyone done a cold, unemotional cost-benefits analysis of taxation? I would love to see an unemotional study on this issue.

(2) To all of you proponents of a flat tax or sales tax scheme: You are tilting at wind mills here. Like it or not, the Democrats will have control of both houses of Congress for the next two years at a minimum and are very likely to have the executive branch for the next four years. The Democrats will never adopt either a flat tax or a sales tax. The Democrats will instead keep the existing scheme, with modifications: they will make it more progressive. That will hurt me, but that is reality.

(3) To the moderators: Think about splitting off these discussions on taxation to a different thread. The only connection with "hating Obama" is the threat of a more progressive tax scheme under a fully Democratic legislative and executive branch.

Edit
I see that you moderators have implemented my third suggestion. Please move this post to the new thread.

 

[TheStatutoryApe]

So this became my thread. And from such a lovely worded post. lol

You need to quantify exactly what you mean by this. Does "more" refer to the actual tax owed ($) or the tax rate(%)?

Refering to comments on Obama raising taxes I figured it would be obvious that I was referring to rates. Sorry if that was unclear.


And my use of the word 'productive' was probably unclear too so I'll clear that up for anyone I confused. Whether or not you find higher taxes for higher incomes unfair I'm pretty sure that most people with higher incomes consider it unfair. Especially when, as I noted in my OP, they pay the largest percentage of the revenue and are continually targeted as a source for more. So these people, feeling unfairly targeted, are not likely to help matters. They are likely to do everything in their power to keep from paying as much in taxes. And the more you raise their taxes that many more of them will decide to work harder to keep from paying them. How much revenue do you think is lost per year to slick accounting and downright illegal hiding of money? How many corporations send operations over seas to cut their losses to the taxman?
And what do you think of the idea that if only two percent of the population were to stop paying taxes the budget would absolutely collapse?

 

[Astronuc]

With respect to Federal revenue, I think the government should operate with a slight surplus, if only to put aside funds for emergencies (recovery for victims of natural disaster). Chronic deficits and an accumulating debt is unacceptable, especially when paying hundreds of billions on interest - even if it is considered a relatively small fraction of the GDP.

I'd say take the Federal budget and apportion the cost by income/wealth.


I think quantifying benefits of Federal expenditures would be very difficult.

 

[robertm]

Fortunately, just as few people agree with you as agree with those on the far left who think Sweden's tax rates for the rich are too low.

Since you don't buy my pain argument, I'll make a cost/benefits argument for a graduated tax. A good chunk of our government expenditures go to national defense. Who benefits? The poor? How? The benefit is roughly proportional to wealth, and wealth is a very nonlinear function of income. The other big chunk goes to poverty programs. I'll leave that for last.

Who benefits from roads? I've heard ludicrous arguments that the rich don't drive anymore than anyone else. That argument ignores that the rich benefit from having employees who can drive to work, from having truckers who can ship the goods the empoyees make, and from having customers who are able to drive to the shops where the goods are sold. Corporate ownership is similarly non-linear with respect to income. The same goes for government funded research. The rich benefit disproportionately with respect to income.

Poverty programs involve the government out-and-out giving our money to others without permission. There are big parts of this I don't agree with, but that is not germaine to this discussion. There is little benefit from these programs to those not on assistance. The only benefit I can see is akin to the friendly mobster who offers the local store owner protection from thugs (his thugs). Without assistance, the poor might well hold an uprising. Poverty programs are a government sponsored protection racket. The rich have disproportionately more to less, and so the shakedown should be greater.

I have not yet addressed the fact that we all are a very priviledged people in that we live in a society where a poor person can become rich. The rich "owe" society something for their elevated economic status. This extra something is an even stiffer graduation on the tax rate. Anything less would not be fair.

This fairness approach is admittedly an ugly way to look at things. It exposes quite a few warts. Maybe that's a good thing. There are other ways to expose this ugly side of the government-sponsored shakedown.

I like my spread-the-pain approach. All but those in the most abject poverty would pay some tax. Even a person currently on welfare who owns television sets and a nice car or two should be contributing to the society. It would have to be a pittance, but they should contribute something. It would make them feel more a part of society and make them appreciate (through some pain and suffering) what society has to offer.

I have always looked at it this way DH. Even as a child I was able to see the lest-of-the-evils in this approach. I fail to understand how anyone can morally or economicly argue a much different approach.

 

[D H]

I'd say take the Federal budget and apportion the cost by income/wealth.

I think quantifying benefits of Federal expenditures would be very difficult.

With regard to you latter statement: Without doing this, how can anyone make a rational as opposed to purely emotional claim of fairness? Surely some economist must have made some study, somewhere. To base one of the most important aspects of the government (how much they take from me, and everyone else) on the basis of pure emotion seems utterly ludicrous. Then again, all it takes is a little viewing of CSPAN to see that pure emotion rather than logic and science is the dominant form of argument made by politicians of any stripe.

=========================================================

I have always looked at it this way DH. Even as a child I was able to see the lest-of-the-evils in this approach. I fail to understand how anyone can morally or economicly argue a much different approach.

Robert, you quoted my backup cost/benefit argument for a graduated tax. My lesser of evils / spread-the-pain argument is in post #4. BTW, if it is not clear, I agree with you completely.

As Astro noted, it is very hard to quantify benefits. I made a stab at that in the quoted post. Note well: Nobody has refuted my claims. They continue making the purely emotional claims instead.

Taxes are inherently unfair. The only way to make taxes fair is to not tax. That ain't going to happen. A spread-the-fairness metric, as Astro noted, is not quantifiable for the simple reason that a very large part of the federal budget goes into social programs. Those who pay the bulk of the federal taxes draw zero benefit from these social programs. Any arguments about what is fair have to devolve to emotional appeals.

On the other hand, a spread-the-pain metric is quantifiable. We can look at it rationally. For example, economists know a lot about the marginal value of income. Moreover, a spread-the-pain metric is completely detached from how the government spends the money it takes from us. This, too, is a good feature.

 

[Astronuc]

The IRS certainly could quantify the income revenue, then perhaps also quantify aggregate wealth.

The Roman empire taxed on the basis of land and grain production. There were other taxes as well. Of course, the emperor could make grants of land, particularly from land acquired via conquest, which of course is how the US grew.

If one looks at history, one can see where certain individuals obtained significant land grants through political or business connections (often the two were the same).

I'm all for reduced capital gains, but with a catch. I think short term capital gains, particularly those obtained on speculation (or insider trading) should be taxed at a higher rate, whereas the longer the capital is held, taxes are reduced (e.g. 1% per annum). This discourages gambling in the equities/capital markets and enourages long term investment.

I think corporate taxes should be adjusted by a multiplier proportional to the ratio of compensations of the highest paid (e.g. CEO compensation) to the lowest paid (secretary or janitor). If a company pays its CEOs 100, 200, 300 times the lowest paid, then it can darn well pay taxes. Health care and retirement benefits (retirement) could also be used to adjust taxes.

Taxes are an inherent burden in civilizations, and they should be made as fair as possible.

 

[D H]

Taxes are an inherent burden in civilizations ...

I suspect all of us at PF agree with that statement. Even the most vehement Libertarians agree that some taxes are necessary.

... and they should be made as fair as possible.

Doing so is very problematic because the fairness of a taxation scheme is inherently unquantifiable. Because fairness is unquantifiable, any discussion of fairness devolves into an emotional argument. What exactly fairness means is strongly correlated with one's political leanings. What is completely fair to someone on the far left of the political spectrum is very unfair to a person on the far right of the spectrum, and vice versa.

 

[WheelsRCool]

The only problem with corporate taxes is that corporations oftentimes pass them, or a portion of them, onto the consumers. So IMO one should raise them too high.

Yes, taxes are a necessary part of civilization. They're like government. A necessary evil.

The wealthier a person is, the more money they will always have. Wealth is not something for government to tax to "re-distribute" to the populace. Doing so kills all incentive to produce wealth in the first place. Our society is based on equality of opportunity, not equality of outcome.

 

[D H]

The only problem with corporate taxes is that corporations oftentimes pass them, or a portion of them, onto the consumers.

Corporations that do not make a profit soon cease to be corporations. Oftentimes is a gross understatement. It is more like "always". This, to me, represents a huge problem with corporate taxes. The corporations don't really pay them. Consumers do. Corporate taxes are a hidden tax and regressive tax on the citizenry. The one big advantage of a national sales tax is that I would know with each and every purchase exactly how mad I should be at the federal budget. Hidden taxes are nasty. Taxation should be very visible.

Regressive taxes are also nasty. Corporate taxes are essential disguised sales taxes. Only those on the fringe end of the right think a national sales tax is "fair". They do a terrible job at spreading the pain (my preferred metric).

So IMO one should raise them too high.

There must be a typo here somewhere.

 

[Astronuc]

Our society is based on equality of opportunity, not equality of outcome.

Equality of opportunity does not exist - there is too much inequity. The US economy is based on inequity and has been from the beginning - e.g. indentured servitude, slavery and appropriation of lands which the native peoples inhabited. There are interesting history books which detail many developments, e.g. turnpikes, toll roads, and railroads, in which certain lawyers and businessmen got preferential and exclusive benefits for state and federal governments that were certainly not available to the average citizen.

In short, 'equal opportunity' is the carrot at the end of the stick that many will never experience.