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> First, the high federal taxes preclude it. The federal government has set itself up as the collector of most taxes, which it would then dole back out to the s

by bhupy 6y ago

> First, the high federal taxes preclude it. The federal government has set itself up as the collector of most taxes, which it would then dole back out to the states with various strings attached. This is half-true, and to the extent that this is the case, the major political party that GP is attacking here has essentially made it its mission to reduce those high federal taxes. But on the other side of the coin, itt's also worth mentioning that the US Federal taxes are some of the lowest among the OECD. Germany’s second-highest marginal income-tax rate of 42% kicks in for married households earning around €112,000 ($124,000). An American couple with that income pays a marginal rate of only 22% and would need to earn $612,350 before paying the top marginal rate of 37%[1]. If there's a state that wants this kind of a couple to pay taxes that are comparable to Germany's, they have a LOT of room to work with. > Second, a significant source of federal funds is newly printed money, which the states do not (currently) have the ability to do. 1. This is true of the EU as well. Each member state has to get approval from the ECB to print new money. 2. the numbers I've cited are the spending numbers, that's downstream of taxes and money printing. [1] https://www.wsj.com/articles/the-middle-class-always-pays-11574967052 https://www.wsj.com/articles/the-middle-class-always-pays-11...

mindslight 6y ago
Many people have done the argument more justice than I can do, especially off the cuff, but US services are strikingly low for US federal taxes. This creates a general anti-tax sentiment, fueled by a focus on individual states' taxes rather than the bulk tax of the federal government. Talking about EU/ECB is a red herring as the system hasn't been in existence long enough to collapse under its own incentives. But sure, another answer to your question is "nothing". As in, various states might be raising taxes after this is all said and done. The Covid crisis and this orchestrated destruction of the federal government could usher in a return to more localism. It's hard to say what's around the corner from this point.
- bhupy 6y ago
  > but US services are strikingly low for US federal taxes That's because US federal tax-base is extremely narrow. Ironically the US has the most progressive tax system in the developed world; the top 1% pay ~45% of the Fed budget, but there's only so much we can raise by targeting the rich, since by definition the base is so small. In contrast, in EU countries the tax bases is broad, it's a large number of middle-class taxpayers that pay high income taxes and high consumption taxes (VAT). While the funding is more regressive, it raises more revenue which enables more progressive spending. The net result is that, after taxes and transfers, the higher middle-class tax nations are more progressive. > This creates a general anti-tax sentiment, fueled by a focus on individual states' taxes rather than the bulk tax of the federal government. That's a feature, and not a bug — States competing with each other on tax rates creates a downward pressure on taxes in the same way that enterprise competition creates a downward pressure on prices. I already mentioned the EU, but Switzerland works exactly like this too. The top marginal Federal tax rate in Switzerland is ~10%, while the Cantonal tax rates vary wildly between 16-30%. The net result is that the Swiss enjoy some of the lowest taxes in the developed world while enjoying one of the highest standards of living and superior services. Much like the rest of the OECD, Swiss taxes are broad-based middle class taxes as opposed to top-heavy progressive taxes like the US.
  - srtjstjsj 6y ago
    If the US had a stronger labor movement like Europe, then the 1% would have less money and would pay a smaller share of taxes, while the middle class would have more income and pay more tax.
    - bhupy 6y ago
      Except the median disposable income (aka middle class income) in the US is higher than most of Europe: https://en.wikipedia.org/wiki/Disposable_household_and_per_capita_income#Median https://en.wikipedia.org/wiki/Disposable_household_and_per_c...
rapala 6y ago
You can't really compare tax rates between countries like that. Some 20% of households in the USA earn 112000€ or more per year, where as only 6% of house holds in Germany earn 72000€ or more per year.
- bhupy 6y ago
  I think the argument that you're trying to make is that the average wage is higher, and therefore you have to take that into account when doing this comparison. You're absolutely correct about that, and the linked article I showed does exactly that. It computes the multiple of the average wage at which the top marginal rate kicks in. The U.S. top marginal rate applies only to taxpayers whose wages are 9.3 times the average wage. In Belgium the top marginal rate ensnares workers earning 1.1 times the average, and in the Netherlands 1.4 times. This pattern persists across all peer OECD nations. The US is an outlier in its progressivity.
  - rapala 6y ago
    The article is unfortunately paywalled so I couldn't read it. That ratio is indeed more sensical and interesting. But I think it still misses two points. First, the distribution of tax payers to different marginal tax rate brackets differ. That is, how many percent of US tax payers actually pay top marginal rate vs how many in Belgium do. Second, the differences in purchasing power. What does the average income (or the top income for that matter) actually get you in different countries.
    - bhupy 6y ago
      > First, the distribution of tax payers to different marginal tax rate brackets differ. That is, how many percent of US tax payers actually pay top marginal rate vs how many in Belgium do. By definition, the the metric takes into account the median. Because the top marginal rate kicks in at 1.1x the median (in Belgium), it is the middle of the distribution bears the top marginal burden. Likewise, in the US, 9.3x the median is at the top end of the distribution. > Second, the differences in purchasing power. What does the average income (or the top income for that matter) actually get you in different countries. https://en.wikipedia.org/wiki/Disposable_household_and_per_capita_income#Median https://en.wikipedia.org/wiki/Disposable_household_and_per_c... In fact, the median disposable income after adjusting for purchasing power in the US is higher than that of Belgium as well as Germany. That means that the median person in the US has a higher purchasing power AND pays much less in taxes than the median Belgian, who pays the top marginal rate (well, 1.1x the median, but that's basically the same).

by bhupy 6y ago

mindslight 6y ago

Many people have done the argument more justice than I can do, especially off the cuff, but US services are strikingly low for US federal taxes. This creates a general anti-tax sentiment, fueled by a focus on individual states' taxes rather than the bulk tax of the federal government. Talking about EU/ECB is a red herring as the system hasn't been in existence long enough to collapse under its own incentives. But sure, another answer to your question is "nothing". As in, various states might be raising taxes after this is all said and done. The Covid crisis and this orchestrated destruction of the federal government could usher in a return to more localism. It's hard to say what's around the corner from this point.

bhupy 6y ago
> but US services are strikingly low for US federal taxes That's because US federal tax-base is extremely narrow. Ironically the US has the most progressive tax system in the developed world; the top 1% pay ~45% of the Fed budget, but there's only so much we can raise by targeting the rich, since by definition the base is so small. In contrast, in EU countries the tax bases is broad, it's a large number of middle-class taxpayers that pay high income taxes and high consumption taxes (VAT). While the funding is more regressive, it raises more revenue which enables more progressive spending. The net result is that, after taxes and transfers, the higher middle-class tax nations are more progressive. > This creates a general anti-tax sentiment, fueled by a focus on individual states' taxes rather than the bulk tax of the federal government. That's a feature, and not a bug — States competing with each other on tax rates creates a downward pressure on taxes in the same way that enterprise competition creates a downward pressure on prices. I already mentioned the EU, but Switzerland works exactly like this too. The top marginal Federal tax rate in Switzerland is ~10%, while the Cantonal tax rates vary wildly between 16-30%. The net result is that the Swiss enjoy some of the lowest taxes in the developed world while enjoying one of the highest standards of living and superior services. Much like the rest of the OECD, Swiss taxes are broad-based middle class taxes as opposed to top-heavy progressive taxes like the US.
- srtjstjsj 6y ago
  If the US had a stronger labor movement like Europe, then the 1% would have less money and would pay a smaller share of taxes, while the middle class would have more income and pay more tax.
  - bhupy 6y ago
    Except the median disposable income (aka middle class income) in the US is higher than most of Europe: https://en.wikipedia.org/wiki/Disposable_household_and_per_capita_income#Median https://en.wikipedia.org/wiki/Disposable_household_and_per_c...

rapala 6y ago

You can't really compare tax rates between countries like that. Some 20% of households in the USA earn 112000€ or more per year, where as only 6% of house holds in Germany earn 72000€ or more per year.

bhupy 6y ago
I think the argument that you're trying to make is that the average wage is higher, and therefore you have to take that into account when doing this comparison. You're absolutely correct about that, and the linked article I showed does exactly that. It computes the multiple of the average wage at which the top marginal rate kicks in. The U.S. top marginal rate applies only to taxpayers whose wages are 9.3 times the average wage. In Belgium the top marginal rate ensnares workers earning 1.1 times the average, and in the Netherlands 1.4 times. This pattern persists across all peer OECD nations. The US is an outlier in its progressivity.
- rapala 6y ago
  The article is unfortunately paywalled so I couldn't read it. That ratio is indeed more sensical and interesting. But I think it still misses two points. First, the distribution of tax payers to different marginal tax rate brackets differ. That is, how many percent of US tax payers actually pay top marginal rate vs how many in Belgium do. Second, the differences in purchasing power. What does the average income (or the top income for that matter) actually get you in different countries.
  - bhupy 6y ago
    > First, the distribution of tax payers to different marginal tax rate brackets differ. That is, how many percent of US tax payers actually pay top marginal rate vs how many in Belgium do. By definition, the the metric takes into account the median. Because the top marginal rate kicks in at 1.1x the median (in Belgium), it is the middle of the distribution bears the top marginal burden. Likewise, in the US, 9.3x the median is at the top end of the distribution. > Second, the differences in purchasing power. What does the average income (or the top income for that matter) actually get you in different countries. https://en.wikipedia.org/wiki/Disposable_household_and_per_capita_income#Median https://en.wikipedia.org/wiki/Disposable_household_and_per_c... In fact, the median disposable income after adjusting for purchasing power in the US is higher than that of Belgium as well as Germany. That means that the median person in the US has a higher purchasing power AND pays much less in taxes than the median Belgian, who pays the top marginal rate (well, 1.1x the median, but that's basically the same).