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I find that unlikely, since someone making $7.25/hr is probably not paying any income tax at all.

by GarrisonPrime 7y ago

geggam 7y ago
If that was the only tax you would have a really good point
- vonmoltke 7y ago
  That's the only tax the article is discussing.
- zaroth 7y ago
  Neither point is good. If I only earn $50 a day and decide to buy a sandwich which has a meal tax of $1.00 - the problem isn’t that I just paid 5% of my earnings in sales taxes. The problem is I’m only earning $50 a day. But even more to the point is that that only way you can calculate that someone earning $15,000 a year is paying a “higher tax rate” than someone earning $15 million a year is by ignore the fact that the person earning $15k is year is getting EITC, food, and health care subsidies and has an effective negative tax rate even if they did actually pay a few hundred dollars in sales taxes. Here is a good analysis on average tax rates and effective marginal tax rates across income deciles: https://fas.org/sgp/crs/misc/R44787.pdf https://fas.org/sgp/crs/misc/R44787.pdf Note that average effective tax rate is negative up through the 4th decile. (Figure 2) There are points along the curve where the effective marginal tax rate for a mid-range income earner is higher than the effective marginal tax rate of a high income earner. This is due to phase-out of transfer credits — specifically, ACA credits phasing out. (Figure 7) Specifically what that means is you earn an extra dollar and in addition to it being taxed at e.g. 25% it also causes you to lose .25 of ACA credits, making the effective tax rate on that $1 be 50%.
  - geggam 7y ago
    So what you are saying is until you hit the 4th decile you are working for a business who is subsidizing its payroll with tax dollars
    - zaroth 7y ago
      I guess that’s one way of thinking about income redistribution, but I don’t think it’s a robust way to analyze it. In a competitive market with low switching costs, workers get paid roughly what their work is worth. It’s government’s function to ensure the market is competitive and the switching costs are low. But a competitive market with low switching costs does not guarantee that every worker is capable of performing at the median in terms of value creation. In fact it’s a mathematical impossibility. So in perfectly competitive market with a progressive taxation model, lower income earners will be subsidized by the higher income earners, despite everyone being paid entirely competitive and appropriate wages for their individual contributions. It’s not the employers responsibility to subsidize below-median earners, because they aren’t the ones collecting the surplus from the above-median earners. I personally think that most of these subsidies shouldn’t ever phase out, specifically because they screw over the middle class with punitive marginal tax rates. The net effect is that you still cross from negative to positive effective taxes at some point, but it happens with a much smoother marginal tax rate versus gross income. A completely different discussion is whether employers should be able to hire very low skilled workers to do menial jobs at very low pay, or whether we should force employers to provide training and support to employees to the point where they can perform enough valuable work to justify some minimum wage, and everything else just needs to be automated away.
      - geggam 7y ago
        >It’s not the employers responsibility to subsidize below-median earners, because they aren’t the ones collecting the surplus from the above-median earners. This I disagree with emphatically. The empoyers benefit from the social structure supported by tax dollars. Could you imagine a starting a business in the wilderness with no transportation, utilities or other community supported infrastructure ? Those companies also put the most wear and tear on the infrastructure.
        zaroth 7y ago
        I’m not following the logic. Obviously we build infrastructure so that we can have an economy. You don’t get a $20 trillion economy without it. Now we have the infrastructure and the economy, from which the government collects ~$6.5 trillion each year. Companies hire people and pay them for the jobs they perform. In general, more valuable jobs pay higher salaries. The whole thing is a virtuous cycle. Without companies paying salaries, no consumers are buying products from those companies, and so on. In the end, all of the $6.5 trillion comes from people living here. Whether it’s payroll taxes, income taxes, excise taxes, business profit taxes, usage fees,... it’s people paying these taxes out of their personal bank account, or out of a corporate bank account which is in turn owned by the shareholders of that company. Generally increasing the tax rate on a company just increases the price of that conpany’s goods on the market. The customers of the company pay, or the company goes out of business. The infrastructure is there so that companies can use it to hire employees, sell goods & services provided by their employees, grow the economy, increase payroll, and generate more tax revenue. The tax structure is designed around redistribution of wealth. It does not follow that therefore somehow employers are underpaying their employees. There have been cases where employers have colluded to keep wages below market. The government should prosecute those cases and fine those companies. And like I said, if we want a minimum wage, that’s fine, but what it’s setting is a floor on the marginal value of an employee that is hireable, and anyone below that threshold becomes un-hireable.

I find that unlikely, since someone making $7.25/hr is probably not paying any income tax at all.

geggam 7y ago

If that was the only tax you would have a really good point

vonmoltke 7y ago
That's the only tax the article is discussing.
zaroth 7y ago
Neither point is good. If I only earn $50 a day and decide to buy a sandwich which has a meal tax of $1.00 - the problem isn’t that I just paid 5% of my earnings in sales taxes. The problem is I’m only earning $50 a day. But even more to the point is that that only way you can calculate that someone earning $15,000 a year is paying a “higher tax rate” than someone earning $15 million a year is by ignore the fact that the person earning $15k is year is getting EITC, food, and health care subsidies and has an effective negative tax rate even if they did actually pay a few hundred dollars in sales taxes. Here is a good analysis on average tax rates and effective marginal tax rates across income deciles: https://fas.org/sgp/crs/misc/R44787.pdf https://fas.org/sgp/crs/misc/R44787.pdf Note that average effective tax rate is negative up through the 4th decile. (Figure 2) There are points along the curve where the effective marginal tax rate for a mid-range income earner is higher than the effective marginal tax rate of a high income earner. This is due to phase-out of transfer credits — specifically, ACA credits phasing out. (Figure 7) Specifically what that means is you earn an extra dollar and in addition to it being taxed at e.g. 25% it also causes you to lose .25 of ACA credits, making the effective tax rate on that $1 be 50%.
- geggam 7y ago
  So what you are saying is until you hit the 4th decile you are working for a business who is subsidizing its payroll with tax dollars
  - zaroth 7y ago
    I guess that’s one way of thinking about income redistribution, but I don’t think it’s a robust way to analyze it. In a competitive market with low switching costs, workers get paid roughly what their work is worth. It’s government’s function to ensure the market is competitive and the switching costs are low. But a competitive market with low switching costs does not guarantee that every worker is capable of performing at the median in terms of value creation. In fact it’s a mathematical impossibility. So in perfectly competitive market with a progressive taxation model, lower income earners will be subsidized by the higher income earners, despite everyone being paid entirely competitive and appropriate wages for their individual contributions. It’s not the employers responsibility to subsidize below-median earners, because they aren’t the ones collecting the surplus from the above-median earners. I personally think that most of these subsidies shouldn’t ever phase out, specifically because they screw over the middle class with punitive marginal tax rates. The net effect is that you still cross from negative to positive effective taxes at some point, but it happens with a much smoother marginal tax rate versus gross income. A completely different discussion is whether employers should be able to hire very low skilled workers to do menial jobs at very low pay, or whether we should force employers to provide training and support to employees to the point where they can perform enough valuable work to justify some minimum wage, and everything else just needs to be automated away.
    - geggam 7y ago
      >It’s not the employers responsibility to subsidize below-median earners, because they aren’t the ones collecting the surplus from the above-median earners. This I disagree with emphatically. The empoyers benefit from the social structure supported by tax dollars. Could you imagine a starting a business in the wilderness with no transportation, utilities or other community supported infrastructure ? Those companies also put the most wear and tear on the infrastructure.
      - zaroth 7y ago
        I’m not following the logic. Obviously we build infrastructure so that we can have an economy. You don’t get a $20 trillion economy without it. Now we have the infrastructure and the economy, from which the government collects ~$6.5 trillion each year. Companies hire people and pay them for the jobs they perform. In general, more valuable jobs pay higher salaries. The whole thing is a virtuous cycle. Without companies paying salaries, no consumers are buying products from those companies, and so on. In the end, all of the $6.5 trillion comes from people living here. Whether it’s payroll taxes, income taxes, excise taxes, business profit taxes, usage fees,... it’s people paying these taxes out of their personal bank account, or out of a corporate bank account which is in turn owned by the shareholders of that company. Generally increasing the tax rate on a company just increases the price of that conpany’s goods on the market. The customers of the company pay, or the company goes out of business. The infrastructure is there so that companies can use it to hire employees, sell goods & services provided by their employees, grow the economy, increase payroll, and generate more tax revenue. The tax structure is designed around redistribution of wealth. It does not follow that therefore somehow employers are underpaying their employees. There have been cases where employers have colluded to keep wages below market. The government should prosecute those cases and fine those companies. And like I said, if we want a minimum wage, that’s fine, but what it’s setting is a floor on the marginal value of an employee that is hireable, and anyone below that threshold becomes un-hireable.