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I would extend this sort of simplification to individuals as well. I'd give them a huge upfront deduction all the way up to the median income and then flat tax

I would extend this sort of simplification to individuals as well. I'd give them a huge upfront deduction all the way up to the median income and then flat tax the remainder.

malandrew 7y ago
This just creates a disincentive for those corporations and individuals that are being the most productive. People need to remember that the United States doesn't exist in a vacuum. We are in competition with all the other countries out there. Maximizing productivity matters at a national level. The more competitive we are, the better off Americans are on average. If we lose that lead position to other countries, we may achieve greater equality internally but we will be worse off relative to the rest of the world.
- maxerickson 7y ago
  I think you have to be careful with semantics. If the marginal effect is small, a higher tax rate might be better described as "slightly less motivating" or something, rather than as a disincentive. The idea that there's a substantial aggregate effect on behavior if you increase taxes from 40% to 41% probably needs a little more proof than just assumption.
- scottlegrand2 7y ago
  Oh but there is an incentive here: the higher the median wage, the higher the deduction everyone gets. And for those below the median wage, they can just keep making all the money they want all the way up to that median wage and pay $0 in taxes. What exactly am I missing that's giving me all these downvotes? I just want a fair tax code all the way up and down the socioeconomic ladder and I want to wipe out all those incredible deductions given to the capital gains class so that we're all on the same page.
  - malandrew 7y ago
    don't know why you're getting downvoted, but every time I hear someone say they want to be fair, my immediate reaction is to ask "what's your definition of fair?" My definition is that everyone has skin in the game and feels the same pain when it comes to raising or lowering existing taxes or creating new ones. Any thing else is a wealth transfer and theft from one to give to the other. Having everyone feel the pain proportionally, would have all taxpayers questioning the efficiency of how their money is used. When most taxpayers don't feel the pain is when government starts wasting money. Why pressure governments to provide more bang for the buck when you're not the one footing the bill. Furthermore, you're also distorting the cost of labor and distorting how taxes are handled. Those that don't pay any taxes end up providing artificially cheap labor. If a worker needs $10/hour for it to be worth their while and the taxes they pay are $0, businesses will pay $10/hour. If they need $10/hour for it to be worth their while and their taxes are $2, the business will have to pay $12. If the product/service the business provides sells for $20/hour, the business gets $10 in the first scenario and $8 in the second scenario. The business actually makes more in the scenario where the labor doesn't pay taxes and businesses are better at avoiding taxes through clever accounting so less money is likely to be raised than a flat percent that everyone pays with no loopholes. Having the rich pay all the taxes also gives them the most economic incentive to make modifications to the system in their favor, and it puts the most money in their pocket to spend on lobbying activities. In the example above, the business has up to $10/hour of profit to allocate to lobbying with when they are paying the taxes. At the end of the day, the market will adjust to all the distortions you bake into the system, hiding the true cost of inputs needed to produce goods and services, which reduces market efficiency. Overall, society is better off if things are priced as accurately as possible since people can make more accurate decision about the worth of providing goods and services. This also applies to making sure the costs of externalities are priced into the goods and services provided.
    - scottlegrand2 7y ago
      So then what are you proposing here, a straight head tax? That seems catastrophic to me but maybe you can tell me what I'm missing. I believe in economics but I also believe we are living in a deranged Markov process with selfish actors. and I don't see how allowing multi-generational piles of money to accumulate is good for society in the long run because you end up with an unassailable ruling class which is exactly the opposite of what this country has evolved towards until recently, no? I'm no fan of either major political party because the right cuts taxes and increases military spending whilst the left undoes those tax cuts and increases social spending. And in both cases we go deeper and deeper into debt. What's your solution here? I could go for a wealth tax or I could go for 100% inheritance tax here. And in doing so eliminate income tax. I'm open to anything that doesn't excessively redistribute wealth yet at the same time stops the accumulation of wealth into a very small number of uber wealthy families.
int_19h 7y ago
Change that deduction into a tax credit, and you're basically describing one way to implement UBI. I think it's not obvious to everybody that what you're suggesting is really a progressive income tax, BTW, since that flat rate is paid on different proportion of income, and with a high enough cut-off, it can easily be more progressive than our present arrangement for most middle class tax brackets and below.

I would extend this sort of simplification to individuals as well. I'd give them a huge upfront deduction all the way up to the median income and then flat tax the remainder.

malandrew 7y ago

This just creates a disincentive for those corporations and individuals that are being the most productive. People need to remember that the United States doesn't exist in a vacuum. We are in competition with all the other countries out there. Maximizing productivity matters at a national level. The more competitive we are, the better off Americans are on average. If we lose that lead position to other countries, we may achieve greater equality internally but we will be worse off relative to the rest of the world.

maxerickson 7y ago
I think you have to be careful with semantics. If the marginal effect is small, a higher tax rate might be better described as "slightly less motivating" or something, rather than as a disincentive. The idea that there's a substantial aggregate effect on behavior if you increase taxes from 40% to 41% probably needs a little more proof than just assumption.
scottlegrand2 7y ago
Oh but there is an incentive here: the higher the median wage, the higher the deduction everyone gets. And for those below the median wage, they can just keep making all the money they want all the way up to that median wage and pay $0 in taxes. What exactly am I missing that's giving me all these downvotes? I just want a fair tax code all the way up and down the socioeconomic ladder and I want to wipe out all those incredible deductions given to the capital gains class so that we're all on the same page.
- malandrew 7y ago
  don't know why you're getting downvoted, but every time I hear someone say they want to be fair, my immediate reaction is to ask "what's your definition of fair?" My definition is that everyone has skin in the game and feels the same pain when it comes to raising or lowering existing taxes or creating new ones. Any thing else is a wealth transfer and theft from one to give to the other. Having everyone feel the pain proportionally, would have all taxpayers questioning the efficiency of how their money is used. When most taxpayers don't feel the pain is when government starts wasting money. Why pressure governments to provide more bang for the buck when you're not the one footing the bill. Furthermore, you're also distorting the cost of labor and distorting how taxes are handled. Those that don't pay any taxes end up providing artificially cheap labor. If a worker needs $10/hour for it to be worth their while and the taxes they pay are $0, businesses will pay $10/hour. If they need $10/hour for it to be worth their while and their taxes are $2, the business will have to pay $12. If the product/service the business provides sells for $20/hour, the business gets $10 in the first scenario and $8 in the second scenario. The business actually makes more in the scenario where the labor doesn't pay taxes and businesses are better at avoiding taxes through clever accounting so less money is likely to be raised than a flat percent that everyone pays with no loopholes. Having the rich pay all the taxes also gives them the most economic incentive to make modifications to the system in their favor, and it puts the most money in their pocket to spend on lobbying activities. In the example above, the business has up to $10/hour of profit to allocate to lobbying with when they are paying the taxes. At the end of the day, the market will adjust to all the distortions you bake into the system, hiding the true cost of inputs needed to produce goods and services, which reduces market efficiency. Overall, society is better off if things are priced as accurately as possible since people can make more accurate decision about the worth of providing goods and services. This also applies to making sure the costs of externalities are priced into the goods and services provided.
  - scottlegrand2 7y ago
    So then what are you proposing here, a straight head tax? That seems catastrophic to me but maybe you can tell me what I'm missing. I believe in economics but I also believe we are living in a deranged Markov process with selfish actors. and I don't see how allowing multi-generational piles of money to accumulate is good for society in the long run because you end up with an unassailable ruling class which is exactly the opposite of what this country has evolved towards until recently, no? I'm no fan of either major political party because the right cuts taxes and increases military spending whilst the left undoes those tax cuts and increases social spending. And in both cases we go deeper and deeper into debt. What's your solution here? I could go for a wealth tax or I could go for 100% inheritance tax here. And in doing so eliminate income tax. I'm open to anything that doesn't excessively redistribute wealth yet at the same time stops the accumulation of wealth into a very small number of uber wealthy families.

int_19h 7y ago

Change that deduction into a tax credit, and you're basically describing one way to implement UBI. I think it's not obvious to everybody that what you're suggesting is really a progressive income tax, BTW, since that flat rate is paid on different proportion of income, and with a high enough cut-off, it can easily be more progressive than our present arrangement for most middle class tax brackets and below.