4 ms·

Income tax is stupid ... we want people to work. Why discourage it?

by dools 8y ago

ericintheloft2 8y ago
You are saying that income tax in discouraging people to work, do you have any evidence of this?
- todd8 8y ago
  From the US Congressional Budget Office[1]: "When workers’ earnings rise but their after-tax income rises less—because of increases in their income and payroll taxes or declines in their benefits from government programs—their incentive to work typically declines" [1] https://www.cbo.gov/publication/52472 https://www.cbo.gov/publication/52472
  - yourbandsucks 8y ago
    That's only really relevant when people cross some thresholds at the very bottom of the income scale that cause them to lose benefits, though. Otherwise, it's just trivially true for any taxation regime: a flat 1% tax means your after-tax income rises less than your pre-tax income.
CiaranMcNulty 8y ago
Progressive income tax retains the property that the higher your salary is, the more you take home
- richardknop 8y ago
  But there are diminishing returns which is not exactly motivating. The way to think about it is, imagine you would work 20% harder, but instead of 20% extra take home money you only get 10%. And it gets more skewed progressively which discourages trying hard at some point. People just stop trying as they don't see the reward as good enough for working harder.
  - SmellyGeekBoy 8y ago
    Evidence doesn't seem to suggest that higher earners "stop trying", but above a surprisingly low threshold it's cheaper to pay someone to organise your tax affairs for you and move your money through various loopholes to (legally) avoid paying taxes. Any government plans to "tax the rich" end up hitting the people just below this threshold the hardest (usually small business owners) while multimillionaire corporate CEOs with various offshore holding companies continue to not pay their fair share.
    - richardknop 8y ago
      Ok but that kind of proves my point. They are avoiding taxes and using loopholes and tax havens precisely because it is unfair that their tax rate is increasing the more they earn. At least they feel it’s unfair to them. Why not solve the problem by having a simple flat tax? Everybody pays the same amount, let’s say 20%. Then it becomes much easier to come after tax dodgers on moral grounds. They no longer have an excuse of them being unfairly treated as their tax is identical to everybody else.
      - sumedh 8y ago
        > At least they feel it’s unfair to them. and yet you have people like Buffett and Gates who say the exact opposite that they should be taxed more. So who is right the other rich people complaining about taxes or Buffett/Gates saying they want more taxes?
  - kurtisc 8y ago
    'At some point.' You're verbally describing the Laffer curve. Do you think they're on the right hand side?
- rataata_jr 8y ago
  The harder you work, the more we punish you.
lmm 8y ago
We want to fund things that benefit everyone but whose benefits would not be practical to capture directly, in a way that feels fair or at least fair-ish. What would you suggest?
- dools 8y ago
  I would suggest first reframing how you see the mechanics of government finance: https://www.youtube.com/watch?v=XnSaBGthkio https://www.youtube.com/watch?v=XnSaBGthkio Governments create money when they spend and then tax it back. It is the point at which taxes are imposed that enable spending. Tax collection is the end of the transaction. So the constraint on government spending is aggregate spending, not total tax receipts last year. Armed with this information you can deduce that the government can purchase any output not consumed by the private sector at a fixed minimum price, so long as it doesn't compete with the private sector for the same resources, the most obvious being labour: http://www.jobguarantee.org/ http://www.jobguarantee.org/ Once you have this understanding of how government finance works you can see that the government isn't desperately trying to "raise revenue to fund itself" but rather, needs to ensure it creates sufficient space in the economy to spend without inflation risk. Most social programs deal with the fringes of the private sector and thus carry no inflation risk, and so long as they're counter cyclical do not need to be "funded" as such. For everything else, taxing assets, wealth and resource usage will suffice! https://www.nakedcapitalism.com/2014/06/randy-wray-tax-bads-not-goods.html https://www.nakedcapitalism.com/2014/06/randy-wray-tax-bads-...

Income tax is stupid ... we want people to work. Why discourage it?

by dools 8y ago

Income tax is stupid ... we want people to work. Why discourage it?

ericintheloft2 8y ago

You are saying that income tax in discouraging people to work, do you have any evidence of this?

todd8 8y ago
From the US Congressional Budget Office[1]: "When workers’ earnings rise but their after-tax income rises less—because of increases in their income and payroll taxes or declines in their benefits from government programs—their incentive to work typically declines" [1] https://www.cbo.gov/publication/52472 https://www.cbo.gov/publication/52472
- yourbandsucks 8y ago
  That's only really relevant when people cross some thresholds at the very bottom of the income scale that cause them to lose benefits, though. Otherwise, it's just trivially true for any taxation regime: a flat 1% tax means your after-tax income rises less than your pre-tax income.

CiaranMcNulty 8y ago

Progressive income tax retains the property that the higher your salary is, the more you take home

richardknop 8y ago
But there are diminishing returns which is not exactly motivating. The way to think about it is, imagine you would work 20% harder, but instead of 20% extra take home money you only get 10%. And it gets more skewed progressively which discourages trying hard at some point. People just stop trying as they don't see the reward as good enough for working harder.
- SmellyGeekBoy 8y ago
  Evidence doesn't seem to suggest that higher earners "stop trying", but above a surprisingly low threshold it's cheaper to pay someone to organise your tax affairs for you and move your money through various loopholes to (legally) avoid paying taxes. Any government plans to "tax the rich" end up hitting the people just below this threshold the hardest (usually small business owners) while multimillionaire corporate CEOs with various offshore holding companies continue to not pay their fair share.
  - richardknop 8y ago
    Ok but that kind of proves my point. They are avoiding taxes and using loopholes and tax havens precisely because it is unfair that their tax rate is increasing the more they earn. At least they feel it’s unfair to them. Why not solve the problem by having a simple flat tax? Everybody pays the same amount, let’s say 20%. Then it becomes much easier to come after tax dodgers on moral grounds. They no longer have an excuse of them being unfairly treated as their tax is identical to everybody else.
    - sumedh 8y ago
      > At least they feel it’s unfair to them. and yet you have people like Buffett and Gates who say the exact opposite that they should be taxed more. So who is right the other rich people complaining about taxes or Buffett/Gates saying they want more taxes?
- kurtisc 8y ago
  'At some point.' You're verbally describing the Laffer curve. Do you think they're on the right hand side?
rataata_jr 8y ago
The harder you work, the more we punish you.

lmm 8y ago

We want to fund things that benefit everyone but whose benefits would not be practical to capture directly, in a way that feels fair or at least fair-ish. What would you suggest?

dools 8y ago
I would suggest first reframing how you see the mechanics of government finance: https://www.youtube.com/watch?v=XnSaBGthkio https://www.youtube.com/watch?v=XnSaBGthkio Governments create money when they spend and then tax it back. It is the point at which taxes are imposed that enable spending. Tax collection is the end of the transaction. So the constraint on government spending is aggregate spending, not total tax receipts last year. Armed with this information you can deduce that the government can purchase any output not consumed by the private sector at a fixed minimum price, so long as it doesn't compete with the private sector for the same resources, the most obvious being labour: http://www.jobguarantee.org/ http://www.jobguarantee.org/ Once you have this understanding of how government finance works you can see that the government isn't desperately trying to "raise revenue to fund itself" but rather, needs to ensure it creates sufficient space in the economy to spend without inflation risk. Most social programs deal with the fringes of the private sector and thus carry no inflation risk, and so long as they're counter cyclical do not need to be "funded" as such. For everything else, taxing assets, wealth and resource usage will suffice! https://www.nakedcapitalism.com/2014/06/randy-wray-tax-bads-not-goods.html https://www.nakedcapitalism.com/2014/06/randy-wray-tax-bads-...