9 ms·

Reasoning about Taxes

26 points by acqbu 6y ago

chovybizzass 6y ago
this would be great. never going to happen though.
austincheney 6y ago
Instead of an asset tax why not just tax capital gains as regular income? How is classification of that income somehow less worthy of taxation than a salary?
- tonyedgecombe 6y ago
  Capital gains is messy, the UK has been doing a review on it and I don't think there are any easy answers. Ideally you'd want to exclude inflation but that would become a bureaucratic nightmare. Having said that I think there is a good case for treating it and dividends as regular income.
- randerson 6y ago
  Or at least just increasing CGT rates to somewhere between the current rates and income tax rates. But if we got rid of lower CGT rates it could destabilize the stock market. My gripe with income taxes is how each year is taxed in isolation. You could be making minimum wage your whole life except for 1 year where you get a big windfall, and that year you'll be taxed as if you're wealthy and lose most of it to taxes despite needing the money more than most people who paid less tax that year. Perhaps income taxes should be taxed based on a rolling average or something. I can't see how wealth / asset taxes would play out in practice. Elon Musk is the wealthiest man in the world but most of that is unvested TSLA options that he can't sell. The world's wealthiest person could end up owing more tax than he has liquidity for. I think we need to stop all taxation on unrealized gains. Already, things like AMT on ISO exercises penalize the middle class the most, as plenty of people realize each year trying to participate in their employer stock plans. Increasing capital gains tax (only when cash out or transferring) would increase tax on the wealthy, and make life simpler and less stressful for all.
  - austincheney 6y ago
    Changes to CGT will not have any immediate impact on the market. Invested capital isn't income until it is withdrawn from a market account at which point it is taxed. If investment capital remains in the market and is not withdrawn it isn't income. For example if I make $7 million in the market tomorrow I cannot use that money to buy a $7 lunch until I pull some of that money out of the market into a more liquid account (checking or saving). Pulling the money out of the market is where it becomes taxable income. Changes to CGT may have some minor indirect changes on investment by altering perceptions of investment principle. It may even benefit the market by reducing the frequency of money leaving the market.
- jandrewrogers 6y ago
  A couple reasons. First, long-term capital gains do not have their cost basis adjusted for inflation in the US (some other countries do), which is a significant drag on real returns -- you are literally paying taxes on inflation. This does not materially affect income. Second, income does not have any downside risk, you can't lose money, whereas capital gains do and with limited ability to deduct those losses in the US. Lower tax rates offset lack of deductibility for material losses that don't affect income. If these losses became deductible, which they are in some other countries, then treating it like income would be fair. It is also worth noting that the combined long-term capital gains tax rates in the many parts of the US are already among the highest in the world. You will receive more favorable tax treatment in most of Europe than California, for example. There is a separate policy issue: governments want to incentivize long-term investment, which are inherently more risky than short-term investments, ceteris paribus. If you treat long-term capital investments like short-term income investments, it strongly incentivizes investment to flow into rent-seeking cashflow businesses -- same expected return with much less risk. You see this in many parts of Europe where an enormous percentage of available capital flows into rental property investment.
  - austincheney 6y ago
    > Second, income does not have any downside risk, you can't lose money That isn't correct. You can lose money with income. As a consultant you are on your own for expenses and can end up earning a negative rate if your expenses exceed your income rate. Whether or now those expenses are deductible against your income taxes is immaterial to the more immediate accounting at hand.
    - jandrewrogers 6y ago
      A consultant is running a business, it isn't wage income which is what most people mean by "regular income". I can deduct expenses against my consulting income but not my wage income. It is always possible to spend more money than you earn in wages but that doesn't mean you have negative income as a consequence. Other kinds of income can be negative even with no expenses. The point stands that there is no such thing as a negative paycheck.
retrac 6y ago
As an aside, I learned something recently. The US actually has the most progressive income tax system for a developed nation. Shockingly so, compared with the flat and regressive tax systems in countries like Sweden. There they basically have two income tax brackets -- everything over the basic deduction gets a flat ~35% tax up to about $60,000 equivalent. There's also an additional bracket for incomes above that point. Plus a flat VAT charged on most purchases. I suppose whether spending is progressive or regressive to economic equality is far more important than whether the tax system is.
- iamatologist 6y ago
  This factoid keeps getting discovered in the comment sections on the Internet. I guess the Scandinavian centre-right think tanks have got some reach. They are also quite pleased with how supposedly socialist America already is. It seems almost like a reverse psychology trick.
  - retrac 6y ago
    Well, I was actually going to use the comparison to Canada (where the topic came up the other day in a discussion I was having) but while Canada's system is less progressive than compared to the US, the gap is less dramatic than with Sweden.
- jetrink 6y ago
  > The US actually Are you speaking about the US as a whole or just the federal government? If you only consider federal income taxes, then yes, our system looks progressive by comparison. However, US citizens pay federal, state and often city taxes and the tax rate become more flat in many locations when all levels of taxation are considered. Also, for the full picture, you really should consider benefits. For example, even as someone with no major health problems, my health insurance and healthcare costs between 10% and 20% of my pre-tax income - as it does for many Americans. Other nations have comparable healthcare systems that are funded by taxes, so excluding that benefit skews the comparison.
  - 6y ago
jfim 6y ago
Interestingly enough, the ultra rich would probably like to move to a sales tax model too. As a fraction of income, I'm sure that billionaires do spend less than any of us. For a sales tax to derive the same amount as an income tax, it would have to be very large. Warren Buffett said that his effective income tax rate is around 16%. For a sales tax to be comparable, it would have to be, say 32% and Buffett would have to spend 50% of his income on taxable goods. The author does mention a wealth tax, but does not really elaborate on that.
- iamatologist 6y ago
  Billionaires would absolutely not pay a lot in sales taxes, you are correct. Especially the sweatervest billionaires who are almost conspiciously frugal (at least in public). And even the ones who flaunt their wealth won’t buy one yacht for every day of the month or something ridiculous like that. Or terraform the Ghobi Desert in order to turn it into their own personal mega golf course.
_qulr 6y ago
"6. Tax structure is a powerful way to create incentives for behaviors we want to encourage" This is the (first) fundamental mistake of the article. The purpose of taxes is to raise funds for necessary services, as stated in steps 1 - 5. The only question is how to raise those funds fairly. As soon as you start thinking about incentives and changing behaviors, the tax system suddenly has two purposes rather than one, and those two purposes can be at odds. Really, in a free (as in freedom) country, the government has little or no purpose in trying to guide behavior, except to prevent people from illegally harming others. "Individual income taxes are bad because: They penalize people's initiative, hard work, savings, investing, and attempts to better themselves." It's not a penalty, it's simply a fair rate based on ability to pay. Even under progressive taxation, you still end up better off by making more money. There would only be a "penalty" if the tax rate were 100% or somehow >100% for additional income. The only thing that prevents people from bettering themselves is means-testing some essential service, such as health care. In other words, losing your health care or having it priced out of reach when you get a better job or start your own business. This is why we need single-payer. (And arguably government-subsidized higher education.)
- tonyedgecombe 6y ago
  Pigovian taxes have been a thing for a long time, we could do with a lot more of them. They are positive in a free market economy because you can let the market find less damaging alternatives. Without them you rely on more legislation which tends to be ham-fisted and full of holes.
- justoreply 6y ago
  some examples about changing behaviors: high tobacco taxes to reduce smoking, or high fuel taxes to reduce pollution
  - _qulr 6y ago
    > high tobacco taxes to reduce smoking This ends up just penalizing poor people. Cigarettes are addictive. Higher taxes don't magically cure addictions. Anyway, lots of things in the world are bad for you. But it's a free country. If someone wants to smoke and drink and eat a bunch of junk and never exercise, they have that right. There are a ton of "bad" things you could tax, it's an endless futile exercise. > high fuel taxes to reduce pollution Does this actually even work? My own driving behavior is completely unaffected by gas prices. People still need to go places. It seems to me that convenient public transportation would do better in affecting behavior. If public transport is crap/inconvenient/nonexistent, people won't use it.
arberx 6y ago
These arguments are great in theory, but they miss what I think is the most important reason for the current tax system: capitalism survives by spending NOT saving. If you deincentivize consumer spending by enacting larger taxes on consumables/services, that's inheritly bad for the overall economic system.
alkonaut 6y ago
The article lists 3 reasons individual income taxes are bad and one of them is “They are a burden for each citizen to fill out” I may be crazy but that’s an argument for making taxes simple (it shouldn’t just be simple it should be literally simpler than paying an electricity bill). My main issue with abandoning income taxes is that it would be so hard to replace them. Wealth taxes, corporate income and sales taxes are tricky to implement.
- _huayra_ 6y ago
  The only reason they are a burden to fill out (or more so than most other countries) is because direct incentives have some "stink" on them to most Americans, who have bought into this "bootstrapping faux-frontiersman" myth for ages. It's much more palatable to call it a "tax rebate for installing solar panels" than "a government subsidy for installing solar panels". However, just getting rid of that and making it rather automatic (e.g. like in some Scandinavian countries, where your employer and banks send some forms to the government, which in turn computes your taxes, leaving you to just sign off on the prefilled stuff) would be such a relief!
  - gruez 6y ago
    >However, just getting rid of that and making it rather automatic (e.g. like in some Scandinavian countries, where your employer and banks send some forms to the government, which in turn computes your taxes, leaving you to just sign off on the prefilled stuff) would be such a relief! They already do that. Employers are required to withhold income taxes on your behalf. The only thing missing is for the IRS to consolidate all the reports for you and give you a pre-filled form rather than having you do it yourself.
  - henrikschroder 6y ago
    > where your employer and banks send some forms to the government This already happens in the US, your employer sends a W-2 to the government reporting exactly how much taxes they've paid on your behalf. Your bank does something similar. AND THEN everyone is required to fill out a form reporting how much they've earned, as if the government didn't already know, just so Intuit can make more money. Yaaaay, capitalism!
iamatologist 6y ago
I don’t understand why individuals make posts about grand topics like overhauling a whole tax system. It’s not like anyone is going to listen to them. In any case. It seems to me that tax systems are complex (if they are) because you can use money (the thing that is ultimately being taxed) in order to get around regulation. If you can pay some people 10,000 USD in order to save yourself 200,000 USD, then obviously you are gonna want to do that. So then if you already have high wealth inequality you would have to device ever more clever schemes in order to truley tax the rich more than the poor. So can you really create a simple tax system under these conditions? I don’t know if overconsumption is really what should be disincentivized, if the author wants a good economy. It’s a consumption-driven economy. Does the “economy” want every household to get a vacuum cleaner, a television set, a washing machine, a stove, and not much else? Probably not since that creates less economic activity. Sure, that leads to environmental problems and to “poor people hating us” (though I don’t see how that matters), but those are “externalities”.
- clairity 6y ago
  > “It’s a consumption-driven economy. Does the ‘economy’ want every household to get a vacuum cleaner, a television set, a washing machine, a stove, and not much else? Probably not since that creates less economic activity.” that conclusion doesn’t follow. for instance, prices could rise to result in the same level of economic activity (this is unlikely to be the sole response however). the amount of money and the velocity of the economy is correlated to human output (leveraged in various ways), so it’s not that elastic (at least in ways that matters). the money then has to find different routes, nooks, and crannies to fill, and it will. the last 100+ years has been about how to advantage capital and capital holders. it’s time to retire that poor paradigm (re, the inequalities it’s produced) and focus on work and workers as the core economic engine it is.
beefman 6y ago
There are many good arguments for selectively taxing consumption (or rents, as in Georgism). What these miss is that the economy will route around them. Any large, diversified economy like that of the United States must tax all money flows to one degree or another. The complexity of the tax code around the few exceptions (e.g. retirement accounts) is a clue to that. Small economies that don't issue reserve currencies can experiement more. They can even drop major forms of taxation and fund themselves on the resulting financial tourism. Like States that run on gambling revenues, this only works when they are in the minority. This isn't to say that meaningful tax reforms are impossible. But they have to address this dynamic.
- pc86 6y ago
  It sounds like you're saying that a more diversified economy will, by definition, need a more complex tax code. This is an interesting idea I don't think I've come across before. The one exception I can see to this is an extremely simple tax code e.g. a flat tax, which has a host of its own issues, including de facto regressive taxation.
  - klipt 6y ago
    Complex tax codes are due to politics. For example tax breaks for specific groups are a way of rewarding voter support blocs. https://youtu.be/rStL7niR7gs https://youtu.be/rStL7niR7gs
  - beefman 6y ago
    I'm saying complexity will increase around untaxed or tax-privildeged flows, as in the large and growing legislative, regulatory and accounting activities around retirement accounts. Look up "back door Roth" for one example. In our case, computing our contribution limits (which change at least annually) is also nearly impossible. Just giving a break to long-term capital gains is enormously complicated. Check out "substantially identical securities" for an example. Or try handling wash sale adjustments if you trade the same securities at more than one brokerage. If you don't priviledge any flows, or let the economy route everything through the priviledged flows, it can be very simple.
glennvtx 6y ago
Taxation is just theft, There is no fair way to apply theft.
- SyzygistSix 6y ago
  I've been robbed and I've been burglarized. I've paid taxes mostly as an upper lower class person for a few decades and as a middle middle class person for over a decade. Paying taxes feels a lot more like an inconvenience than theft to me. Maybe I don't earn enough to truly feel how onerous taxes are.
  - glennvtx 6y ago
    When something is taken from you, against your will, ( through coercion ) that is a theft. People have been conditioned your whole life to accept it, but it is still theft.
    - jhanschoo 6y ago
      You have the option of spending at most few thousand to live in remote land that no government cares to reach, or where no government can reach, and you can truly enjoy negative freedom from governments. Most people choose to live with the coercive power alongside the many other benefits of a powerful government.
      - glennvtx 6y ago
        There is no such place, and even if there were, your argument is essentially, "ergo, Decedo". Government is and always has been the principal enabler of every single genocide, war, and mass atrocity in history. Einstein said the definition of insanity was doing the same thing over and over, expecting different results. Support of hierarchical government is mostly the consequence of brainwashing, and insane.
        jhanschoo 6y ago
        You seem to be set on your worldview, but > There is no such place Not really, there is very little ability or willingness of any government to control what a single individual might do in wastelands like deserts or Antarctica > Government is and always has been the principal enabler of every single genocide, war, and mass atrocity in history. And assuming you are right, they are also the principal protector of property and capital. Who would you rather protect the food that you depend on while it is being grown by a farmer in a field from opportunistic hungry thieves, if not mercenaries, an if the latter, from the mercenaries themselves? I believe government meeting these basic needs are so much a better good than the alternative that it more than balances out the occasional genocide, war, and mass atrocity.
skybrian 6y ago
This is pretty poorly argued and doesn’t even touch on some commonly shared arguments about taxes. For example, I’m sympathetic to the perspective that federal taxes are really about preventing inflation. I’m not sure it changes anything fundamental, but it suggests that we can be less concerned about deficit spending as long as inflation is low. (But this assumes the government can predict what will cause excessive inflation far enough in advance to avoid it.) Also, in the presence of inflation, income taxes and wealth taxes are similar since you need to earn a return just to stay even with inflation. In a way, we already have wealth taxes, but they’re mild since inflation is low. There’s a lot more that could be said. It’s a complicated area.
itake 6y ago
Consumer taxes impact low-incomer people way more than high income people.
- valenterry 6y ago
  In the same, supermarket prices being the same for everyone is impacting low-incomers more than high-incomers. But that is not necessarily a bad thing, it is actually a good thing in the right context/environment. It becomes a problem once people can't even afford the basics anymore.
  - itake 6y ago
    The net effect of consumer taxes is rich people pay less and poor people pay more. If we need to raise (consumer) taxes, then we may hit that upper limit you mentioned where people can’t afford the basics. Whereas if you tax income, no one will complain if billionaires are charged more.
    - valenterry 6y ago
      > The net effect of consumer taxes is rich people pay less and poor people pay more. As a percentage of their income, yes that's true! > If we need to raise (consumer) taxes, then we may hit that upper limit you mentioned where people can’t afford the basics. I think the solution is not to stop raising consumer taxes, but instead to have a way to make sure people can still afford the basics. And that can very well mean to _also_ tax income and/or wealth. Not to replace consumer taxes, but to enable them. In the end, taxes are more less a 0-sum game in terms of money. So, in my (maybe naive) opinion, it is advantageous to create tax so that people are incentivized to create a better life (for everyone). Think about it: with a high income tax and a low consumption tax, you are essentially giving people who have wealth but don't work an advantage. And there are certainly ways to get wealthy without working, be it inheritance, luck (lottery) or even illegal ways of getting rich without paying tax. Hence I think they opposite way is better, given that it is not at the cost of poor people.
      - 6y ago
oramit 6y ago
The author has made a good first attempt here but I find myself not really moved. 1. The author repeatedly says that punishing "Excess" consumption is a good thing and is part of why a consumption tax is good without really explaining why. 2. The author argues that the tax code is too complex right now so moving to a consumption tax will be simpler. There is then a list of necessities he wants to make tax-free, different tax levels on "luxury" items, and a proposed scheme to refund people already taxed monies. It seems like we've just recreated the complexity of the tax code but moved it somewhere else? 3. You mention a wealth (assets) tax at the very beginning as 1 of 2 big changes you want to make but then you never discuss the wealth tax part at all...
shaolinspirit 6y ago
this reasoning begins with the argument that we need government, let's play devils advocate here. anarchy by definition is absence of government, eg is not equal chaos. order is coming from within = no chaos, personal responsibility. national defense - what is nation and what is there to defend? question of global consensus and global dialog. I see a possibility with the help of technology to open new ways how to represent global consensus instead of giving power to one centralized authority which is not transparent, not flexible and highly prone to corruption. a slave has a relationship with slave master and both are benefiting from this contract - one has no responsibility and burden of choice the other has the power and control. I'm sure people will solve this problem in the future and will thrive until there will be some brave individuals who do not tolerate abuse and have a sense of self worth. speculation - solution lies somewhere in the domain of culture.
akvadrako 6y ago
I'm also against income tax, though I'm not convinced VAT is the way to go. The main problem with an income tax is it discourages labor. There are other taxes which actually have good side effects. First I think we should tax limited resources, especially with a land-value tax. Tariffs are also good because they encourage decentralization. Taxes on financial transactions will discourage high frequency trading. A wealth tax will discourage power centralization. Let's think about things we can do that both earn money and make society better.
- dragonwriter 6y ago
  > The main problem with an income tax is it discourages labor. No, it doesn't. Arguably, the structure of US income (including payroll) taxation discourages labor and, even moreso, employment, but that's not inherent, but a result of deliberate inequities in how different sources of income are treated.
  - akvadrako 6y ago
    Why would you say it doesn't discourage labor? If instead of paying somebody $20/hour you need to pay them $30 because of taxes, that makes hiring them more costly and you're incentivized to look for other options.
    - dragonwriter 6y ago
      An income tax that doesn't discriminate among forms of income doesn't discourage labor, because any other options you look for have the same costs. Now, the specifics of the US system of taxation on income discourages labor/employment quite heavily, by tax favoring income through gifts and inheritances (up to a very large quantity) over capital income, which itself is favored over general income, which itself is favored over labor income. But none of that is inherent in the concept of an income tax system.
      - akvadrako 6y ago
        You seem to be saying something much more complex then me. I'm saying having a tax on income discourages labor COMPARED TO NO TAX ON INCOME. That's seems true regardless of other taxes. The only way it wouldn't be true is if raising taxes on labor also raised taxes on all other possible actions in somehow an exactly symmetrical way.
JediWing 6y ago
What I never see discussed with national sales tax proponents: a huge portion of the tax collected would now be on credit cards. As an layman to economics, this seems like it could be potentially disastrous.
sleepysysadmin 6y ago
>The USA should get rid of personal income taxes and replace them with retail sales/consumption taxes, to change incentives. The USA hasn't changed effective taxes in decades. Whenever politicians have 'lowered taxes' it has been completely ineffective. This is a goal, they don't wish to adjust a knob that may impact such large complex systems. They dont want to be the one who destroyed X. >The USA should enact a wealth (assets) tax, to address wealth inequality. Very effective in the short term and then becomes an utter disaster for the country. Your goal of retirement is you save up money to live. If you die, you want your family to get the money. What happens when countries have implemented this; people dont keep the money. Wealth taxes are use it or lose it. So people use it. You then end up with situations where families are on their own. Their is no family wealth anymore. In the short term there's boost to your economy because of the spending. But then you start to build generational debt to insane levels. You have money leaving your country to avoid the taxes and then suddenly you just dont have the original wealth of your country and debt overwhelms.

26 points by acqbu 6y ago

this would be great. never going to happen though.

Instead of an asset tax why not just tax capital gains as regular income? How is classification of that income somehow less worthy of taxation than a salary?

tonyedgecombe 6y ago
Capital gains is messy, the UK has been doing a review on it and I don't think there are any easy answers. Ideally you'd want to exclude inflation but that would become a bureaucratic nightmare. Having said that I think there is a good case for treating it and dividends as regular income.
randerson 6y ago
Or at least just increasing CGT rates to somewhere between the current rates and income tax rates. But if we got rid of lower CGT rates it could destabilize the stock market. My gripe with income taxes is how each year is taxed in isolation. You could be making minimum wage your whole life except for 1 year where you get a big windfall, and that year you'll be taxed as if you're wealthy and lose most of it to taxes despite needing the money more than most people who paid less tax that year. Perhaps income taxes should be taxed based on a rolling average or something. I can't see how wealth / asset taxes would play out in practice. Elon Musk is the wealthiest man in the world but most of that is unvested TSLA options that he can't sell. The world's wealthiest person could end up owing more tax than he has liquidity for. I think we need to stop all taxation on unrealized gains. Already, things like AMT on ISO exercises penalize the middle class the most, as plenty of people realize each year trying to participate in their employer stock plans. Increasing capital gains tax (only when cash out or transferring) would increase tax on the wealthy, and make life simpler and less stressful for all.
- austincheney 6y ago
  Changes to CGT will not have any immediate impact on the market. Invested capital isn't income until it is withdrawn from a market account at which point it is taxed. If investment capital remains in the market and is not withdrawn it isn't income. For example if I make $7 million in the market tomorrow I cannot use that money to buy a $7 lunch until I pull some of that money out of the market into a more liquid account (checking or saving). Pulling the money out of the market is where it becomes taxable income. Changes to CGT may have some minor indirect changes on investment by altering perceptions of investment principle. It may even benefit the market by reducing the frequency of money leaving the market.
jandrewrogers 6y ago
A couple reasons. First, long-term capital gains do not have their cost basis adjusted for inflation in the US (some other countries do), which is a significant drag on real returns -- you are literally paying taxes on inflation. This does not materially affect income. Second, income does not have any downside risk, you can't lose money, whereas capital gains do and with limited ability to deduct those losses in the US. Lower tax rates offset lack of deductibility for material losses that don't affect income. If these losses became deductible, which they are in some other countries, then treating it like income would be fair. It is also worth noting that the combined long-term capital gains tax rates in the many parts of the US are already among the highest in the world. You will receive more favorable tax treatment in most of Europe than California, for example. There is a separate policy issue: governments want to incentivize long-term investment, which are inherently more risky than short-term investments, ceteris paribus. If you treat long-term capital investments like short-term income investments, it strongly incentivizes investment to flow into rent-seeking cashflow businesses -- same expected return with much less risk. You see this in many parts of Europe where an enormous percentage of available capital flows into rental property investment.
- austincheney 6y ago
  > Second, income does not have any downside risk, you can't lose money That isn't correct. You can lose money with income. As a consultant you are on your own for expenses and can end up earning a negative rate if your expenses exceed your income rate. Whether or now those expenses are deductible against your income taxes is immaterial to the more immediate accounting at hand.
  - jandrewrogers 6y ago
    A consultant is running a business, it isn't wage income which is what most people mean by "regular income". I can deduct expenses against my consulting income but not my wage income. It is always possible to spend more money than you earn in wages but that doesn't mean you have negative income as a consequence. Other kinds of income can be negative even with no expenses. The point stands that there is no such thing as a negative paycheck.

retrac 6y ago

As an aside, I learned something recently. The US actually has the most progressive income tax system for a developed nation. Shockingly so, compared with the flat and regressive tax systems in countries like Sweden. There they basically have two income tax brackets -- everything over the basic deduction gets a flat ~35% tax up to about $60,000 equivalent. There's also an additional bracket for incomes above that point. Plus a flat VAT charged on most purchases. I suppose whether spending is progressive or regressive to economic equality is far more important than whether the tax system is.

iamatologist 6y ago
This factoid keeps getting discovered in the comment sections on the Internet. I guess the Scandinavian centre-right think tanks have got some reach. They are also quite pleased with how supposedly socialist America already is. It seems almost like a reverse psychology trick.
- retrac 6y ago
  Well, I was actually going to use the comparison to Canada (where the topic came up the other day in a discussion I was having) but while Canada's system is less progressive than compared to the US, the gap is less dramatic than with Sweden.
jetrink 6y ago
> The US actually Are you speaking about the US as a whole or just the federal government? If you only consider federal income taxes, then yes, our system looks progressive by comparison. However, US citizens pay federal, state and often city taxes and the tax rate become more flat in many locations when all levels of taxation are considered. Also, for the full picture, you really should consider benefits. For example, even as someone with no major health problems, my health insurance and healthcare costs between 10% and 20% of my pre-tax income - as it does for many Americans. Other nations have comparable healthcare systems that are funded by taxes, so excluding that benefit skews the comparison.
- 6y ago

jfim 6y ago

Interestingly enough, the ultra rich would probably like to move to a sales tax model too. As a fraction of income, I'm sure that billionaires do spend less than any of us. For a sales tax to derive the same amount as an income tax, it would have to be very large. Warren Buffett said that his effective income tax rate is around 16%. For a sales tax to be comparable, it would have to be, say 32% and Buffett would have to spend 50% of his income on taxable goods. The author does mention a wealth tax, but does not really elaborate on that.

iamatologist 6y ago
Billionaires would absolutely not pay a lot in sales taxes, you are correct. Especially the sweatervest billionaires who are almost conspiciously frugal (at least in public). And even the ones who flaunt their wealth won’t buy one yacht for every day of the month or something ridiculous like that. Or terraform the Ghobi Desert in order to turn it into their own personal mega golf course.

_qulr 6y ago

"6. Tax structure is a powerful way to create incentives for behaviors we want to encourage" This is the (first) fundamental mistake of the article. The purpose of taxes is to raise funds for necessary services, as stated in steps 1 - 5. The only question is how to raise those funds fairly. As soon as you start thinking about incentives and changing behaviors, the tax system suddenly has two purposes rather than one, and those two purposes can be at odds. Really, in a free (as in freedom) country, the government has little or no purpose in trying to guide behavior, except to prevent people from illegally harming others. "Individual income taxes are bad because: They penalize people's initiative, hard work, savings, investing, and attempts to better themselves." It's not a penalty, it's simply a fair rate based on ability to pay. Even under progressive taxation, you still end up better off by making more money. There would only be a "penalty" if the tax rate were 100% or somehow >100% for additional income. The only thing that prevents people from bettering themselves is means-testing some essential service, such as health care. In other words, losing your health care or having it priced out of reach when you get a better job or start your own business. This is why we need single-payer. (And arguably government-subsidized higher education.)

tonyedgecombe 6y ago
Pigovian taxes have been a thing for a long time, we could do with a lot more of them. They are positive in a free market economy because you can let the market find less damaging alternatives. Without them you rely on more legislation which tends to be ham-fisted and full of holes.
justoreply 6y ago
some examples about changing behaviors: high tobacco taxes to reduce smoking, or high fuel taxes to reduce pollution
- _qulr 6y ago
  > high tobacco taxes to reduce smoking This ends up just penalizing poor people. Cigarettes are addictive. Higher taxes don't magically cure addictions. Anyway, lots of things in the world are bad for you. But it's a free country. If someone wants to smoke and drink and eat a bunch of junk and never exercise, they have that right. There are a ton of "bad" things you could tax, it's an endless futile exercise. > high fuel taxes to reduce pollution Does this actually even work? My own driving behavior is completely unaffected by gas prices. People still need to go places. It seems to me that convenient public transportation would do better in affecting behavior. If public transport is crap/inconvenient/nonexistent, people won't use it.

arberx 6y ago

These arguments are great in theory, but they miss what I think is the most important reason for the current tax system: capitalism survives by spending NOT saving. If you deincentivize consumer spending by enacting larger taxes on consumables/services, that's inheritly bad for the overall economic system.

alkonaut 6y ago

The article lists 3 reasons individual income taxes are bad and one of them is “They are a burden for each citizen to fill out” I may be crazy but that’s an argument for making taxes simple (it shouldn’t just be simple it should be literally simpler than paying an electricity bill). My main issue with abandoning income taxes is that it would be so hard to replace them. Wealth taxes, corporate income and sales taxes are tricky to implement.

_huayra_ 6y ago
The only reason they are a burden to fill out (or more so than most other countries) is because direct incentives have some "stink" on them to most Americans, who have bought into this "bootstrapping faux-frontiersman" myth for ages. It's much more palatable to call it a "tax rebate for installing solar panels" than "a government subsidy for installing solar panels". However, just getting rid of that and making it rather automatic (e.g. like in some Scandinavian countries, where your employer and banks send some forms to the government, which in turn computes your taxes, leaving you to just sign off on the prefilled stuff) would be such a relief!
- gruez 6y ago
  >However, just getting rid of that and making it rather automatic (e.g. like in some Scandinavian countries, where your employer and banks send some forms to the government, which in turn computes your taxes, leaving you to just sign off on the prefilled stuff) would be such a relief! They already do that. Employers are required to withhold income taxes on your behalf. The only thing missing is for the IRS to consolidate all the reports for you and give you a pre-filled form rather than having you do it yourself.
- henrikschroder 6y ago
  > where your employer and banks send some forms to the government This already happens in the US, your employer sends a W-2 to the government reporting exactly how much taxes they've paid on your behalf. Your bank does something similar. AND THEN everyone is required to fill out a form reporting how much they've earned, as if the government didn't already know, just so Intuit can make more money. Yaaaay, capitalism!

iamatologist 6y ago

I don’t understand why individuals make posts about grand topics like overhauling a whole tax system. It’s not like anyone is going to listen to them. In any case. It seems to me that tax systems are complex (if they are) because you can use money (the thing that is ultimately being taxed) in order to get around regulation. If you can pay some people 10,000 USD in order to save yourself 200,000 USD, then obviously you are gonna want to do that. So then if you already have high wealth inequality you would have to device ever more clever schemes in order to truley tax the rich more than the poor. So can you really create a simple tax system under these conditions? I don’t know if overconsumption is really what should be disincentivized, if the author wants a good economy. It’s a consumption-driven economy. Does the “economy” want every household to get a vacuum cleaner, a television set, a washing machine, a stove, and not much else? Probably not since that creates less economic activity. Sure, that leads to environmental problems and to “poor people hating us” (though I don’t see how that matters), but those are “externalities”.

clairity 6y ago
> “It’s a consumption-driven economy. Does the ‘economy’ want every household to get a vacuum cleaner, a television set, a washing machine, a stove, and not much else? Probably not since that creates less economic activity.” that conclusion doesn’t follow. for instance, prices could rise to result in the same level of economic activity (this is unlikely to be the sole response however). the amount of money and the velocity of the economy is correlated to human output (leveraged in various ways), so it’s not that elastic (at least in ways that matters). the money then has to find different routes, nooks, and crannies to fill, and it will. the last 100+ years has been about how to advantage capital and capital holders. it’s time to retire that poor paradigm (re, the inequalities it’s produced) and focus on work and workers as the core economic engine it is.

beefman 6y ago

There are many good arguments for selectively taxing consumption (or rents, as in Georgism). What these miss is that the economy will route around them. Any large, diversified economy like that of the United States must tax all money flows to one degree or another. The complexity of the tax code around the few exceptions (e.g. retirement accounts) is a clue to that. Small economies that don't issue reserve currencies can experiement more. They can even drop major forms of taxation and fund themselves on the resulting financial tourism. Like States that run on gambling revenues, this only works when they are in the minority. This isn't to say that meaningful tax reforms are impossible. But they have to address this dynamic.

pc86 6y ago
It sounds like you're saying that a more diversified economy will, by definition, need a more complex tax code. This is an interesting idea I don't think I've come across before. The one exception I can see to this is an extremely simple tax code e.g. a flat tax, which has a host of its own issues, including de facto regressive taxation.
- klipt 6y ago
  Complex tax codes are due to politics. For example tax breaks for specific groups are a way of rewarding voter support blocs. https://youtu.be/rStL7niR7gs https://youtu.be/rStL7niR7gs
- beefman 6y ago
  I'm saying complexity will increase around untaxed or tax-privildeged flows, as in the large and growing legislative, regulatory and accounting activities around retirement accounts. Look up "back door Roth" for one example. In our case, computing our contribution limits (which change at least annually) is also nearly impossible. Just giving a break to long-term capital gains is enormously complicated. Check out "substantially identical securities" for an example. Or try handling wash sale adjustments if you trade the same securities at more than one brokerage. If you don't priviledge any flows, or let the economy route everything through the priviledged flows, it can be very simple.

glennvtx 6y ago

Taxation is just theft, There is no fair way to apply theft.

SyzygistSix 6y ago
I've been robbed and I've been burglarized. I've paid taxes mostly as an upper lower class person for a few decades and as a middle middle class person for over a decade. Paying taxes feels a lot more like an inconvenience than theft to me. Maybe I don't earn enough to truly feel how onerous taxes are.
- glennvtx 6y ago
  When something is taken from you, against your will, ( through coercion ) that is a theft. People have been conditioned your whole life to accept it, but it is still theft.
  - jhanschoo 6y ago
    You have the option of spending at most few thousand to live in remote land that no government cares to reach, or where no government can reach, and you can truly enjoy negative freedom from governments. Most people choose to live with the coercive power alongside the many other benefits of a powerful government.
    - glennvtx 6y ago
      There is no such place, and even if there were, your argument is essentially, "ergo, Decedo". Government is and always has been the principal enabler of every single genocide, war, and mass atrocity in history. Einstein said the definition of insanity was doing the same thing over and over, expecting different results. Support of hierarchical government is mostly the consequence of brainwashing, and insane.
      - jhanschoo 6y ago
        You seem to be set on your worldview, but > There is no such place Not really, there is very little ability or willingness of any government to control what a single individual might do in wastelands like deserts or Antarctica > Government is and always has been the principal enabler of every single genocide, war, and mass atrocity in history. And assuming you are right, they are also the principal protector of property and capital. Who would you rather protect the food that you depend on while it is being grown by a farmer in a field from opportunistic hungry thieves, if not mercenaries, an if the latter, from the mercenaries themselves? I believe government meeting these basic needs are so much a better good than the alternative that it more than balances out the occasional genocide, war, and mass atrocity.

skybrian 6y ago

This is pretty poorly argued and doesn’t even touch on some commonly shared arguments about taxes. For example, I’m sympathetic to the perspective that federal taxes are really about preventing inflation. I’m not sure it changes anything fundamental, but it suggests that we can be less concerned about deficit spending as long as inflation is low. (But this assumes the government can predict what will cause excessive inflation far enough in advance to avoid it.) Also, in the presence of inflation, income taxes and wealth taxes are similar since you need to earn a return just to stay even with inflation. In a way, we already have wealth taxes, but they’re mild since inflation is low. There’s a lot more that could be said. It’s a complicated area.

itake 6y ago

Consumer taxes impact low-incomer people way more than high income people.

valenterry 6y ago
In the same, supermarket prices being the same for everyone is impacting low-incomers more than high-incomers. But that is not necessarily a bad thing, it is actually a good thing in the right context/environment. It becomes a problem once people can't even afford the basics anymore.
- itake 6y ago
  The net effect of consumer taxes is rich people pay less and poor people pay more. If we need to raise (consumer) taxes, then we may hit that upper limit you mentioned where people can’t afford the basics. Whereas if you tax income, no one will complain if billionaires are charged more.
  - valenterry 6y ago
    > The net effect of consumer taxes is rich people pay less and poor people pay more. As a percentage of their income, yes that's true! > If we need to raise (consumer) taxes, then we may hit that upper limit you mentioned where people can’t afford the basics. I think the solution is not to stop raising consumer taxes, but instead to have a way to make sure people can still afford the basics. And that can very well mean to _also_ tax income and/or wealth. Not to replace consumer taxes, but to enable them. In the end, taxes are more less a 0-sum game in terms of money. So, in my (maybe naive) opinion, it is advantageous to create tax so that people are incentivized to create a better life (for everyone). Think about it: with a high income tax and a low consumption tax, you are essentially giving people who have wealth but don't work an advantage. And there are certainly ways to get wealthy without working, be it inheritance, luck (lottery) or even illegal ways of getting rich without paying tax. Hence I think they opposite way is better, given that it is not at the cost of poor people.
    - 6y ago

oramit 6y ago

The author has made a good first attempt here but I find myself not really moved. 1. The author repeatedly says that punishing "Excess" consumption is a good thing and is part of why a consumption tax is good without really explaining why. 2. The author argues that the tax code is too complex right now so moving to a consumption tax will be simpler. There is then a list of necessities he wants to make tax-free, different tax levels on "luxury" items, and a proposed scheme to refund people already taxed monies. It seems like we've just recreated the complexity of the tax code but moved it somewhere else? 3. You mention a wealth (assets) tax at the very beginning as 1 of 2 big changes you want to make but then you never discuss the wealth tax part at all...

shaolinspirit 6y ago

this reasoning begins with the argument that we need government, let's play devils advocate here. anarchy by definition is absence of government, eg is not equal chaos. order is coming from within = no chaos, personal responsibility. national defense - what is nation and what is there to defend? question of global consensus and global dialog. I see a possibility with the help of technology to open new ways how to represent global consensus instead of giving power to one centralized authority which is not transparent, not flexible and highly prone to corruption. a slave has a relationship with slave master and both are benefiting from this contract - one has no responsibility and burden of choice the other has the power and control. I'm sure people will solve this problem in the future and will thrive until there will be some brave individuals who do not tolerate abuse and have a sense of self worth. speculation - solution lies somewhere in the domain of culture.

akvadrako 6y ago

I'm also against income tax, though I'm not convinced VAT is the way to go. The main problem with an income tax is it discourages labor. There are other taxes which actually have good side effects. First I think we should tax limited resources, especially with a land-value tax. Tariffs are also good because they encourage decentralization. Taxes on financial transactions will discourage high frequency trading. A wealth tax will discourage power centralization. Let's think about things we can do that both earn money and make society better.

dragonwriter 6y ago
> The main problem with an income tax is it discourages labor. No, it doesn't. Arguably, the structure of US income (including payroll) taxation discourages labor and, even moreso, employment, but that's not inherent, but a result of deliberate inequities in how different sources of income are treated.
- akvadrako 6y ago
  Why would you say it doesn't discourage labor? If instead of paying somebody $20/hour you need to pay them $30 because of taxes, that makes hiring them more costly and you're incentivized to look for other options.
  - dragonwriter 6y ago
    An income tax that doesn't discriminate among forms of income doesn't discourage labor, because any other options you look for have the same costs. Now, the specifics of the US system of taxation on income discourages labor/employment quite heavily, by tax favoring income through gifts and inheritances (up to a very large quantity) over capital income, which itself is favored over general income, which itself is favored over labor income. But none of that is inherent in the concept of an income tax system.
    - akvadrako 6y ago
      You seem to be saying something much more complex then me. I'm saying having a tax on income discourages labor COMPARED TO NO TAX ON INCOME. That's seems true regardless of other taxes. The only way it wouldn't be true is if raising taxes on labor also raised taxes on all other possible actions in somehow an exactly symmetrical way.

JediWing 6y ago

What I never see discussed with national sales tax proponents: a huge portion of the tax collected would now be on credit cards. As an layman to economics, this seems like it could be potentially disastrous.

sleepysysadmin 6y ago

>The USA should get rid of personal income taxes and replace them with retail sales/consumption taxes, to change incentives. The USA hasn't changed effective taxes in decades. Whenever politicians have 'lowered taxes' it has been completely ineffective. This is a goal, they don't wish to adjust a knob that may impact such large complex systems. They dont want to be the one who destroyed X. >The USA should enact a wealth (assets) tax, to address wealth inequality. Very effective in the short term and then becomes an utter disaster for the country. Your goal of retirement is you save up money to live. If you die, you want your family to get the money. What happens when countries have implemented this; people dont keep the money. Wealth taxes are use it or lose it. So people use it. You then end up with situations where families are on their own. Their is no family wealth anymore. In the short term there's boost to your economy because of the spending. But then you start to build generational debt to insane levels. You have money leaving your country to avoid the taxes and then suddenly you just dont have the original wealth of your country and debt overwhelms.