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Here's another idea: drop the corporate tax rate to 0% and raise income, high-end property (let's say houses that cost 2x the median in a particular area), and

by tsuraan 15y ago

Here's another idea: drop the corporate tax rate to 0% and raise income, high-end property (let's say houses that cost 2x the median in a particular area), and high-end consumption taxes (a "yacht tax".) If corporations don't pay taxes, then won't everybody who can afford to just do all their business (income and all) through shell corporations? Sort of the way that currently wealthy people skirt the estate tax by having a company own their land, so their next of kin can just inherit the CEO position of the company?

lucasjung 15y ago
This already happens to varying degrees, because if you make enough money the corporate tax structure doesn't hit you as hard as the personal income tax structure. There are plenty of other tricks available as well, such as deferring income, etc. If you also eliminate income taxes and shift completely to consumption-based taxes, it gets a lot harder for wealthy people to avoid taxes; in fact, the only way to avoid consumption taxes is to live the lifestyle of a less-wealthy person. Even illegal sources of income get taxed when you switch to a consumption-based tax system: you can't tax the income of a gangster with no declared income, but you can tax all of the shiny stuff he buys. Regardless of the source of income, the same truth applies: if you want to enjoy your wealth, you will end up paying taxes on it. Of course, some wealthy people will choose to live more frugal lifestyles in order to avoid taxes (many wealthy people already do so, for a variety of reasons). The reduced consumption might hurt the economy some, but they have to put their money somewhere, and that somewhere is generally some sort of investment, which helps the economy. The biggest problem with consumption-based taxes is that they tend to be highly regressive because there is generally an inverse relationship between income and the percent of income spent on consumption. However, there are ways to correct for this. You can target specific categories of goods which only the wealthy can afford (the aforementioned "yacht tax,"), but this tends to be very destructive to those industries and can cause big distortions throughout the rest of the economy. You can exempt certain categories of goods, such as groceries and other basic necessities, but this also creates huge distortions, and also creates a situation where industries buy politicians in order to get their products exempted. Another approach is to offer rebates equal to the consumption taxes paid by a typical low-income family, so that such families will pay zero net tax, but that's complex and expensive to administer.

by tsuraan 15y ago

lucasjung 15y ago

This already happens to varying degrees, because if you make enough money the corporate tax structure doesn't hit you as hard as the personal income tax structure. There are plenty of other tricks available as well, such as deferring income, etc. If you also eliminate income taxes and shift completely to consumption-based taxes, it gets a lot harder for wealthy people to avoid taxes; in fact, the only way to avoid consumption taxes is to live the lifestyle of a less-wealthy person. Even illegal sources of income get taxed when you switch to a consumption-based tax system: you can't tax the income of a gangster with no declared income, but you can tax all of the shiny stuff he buys. Regardless of the source of income, the same truth applies: if you want to enjoy your wealth, you will end up paying taxes on it. Of course, some wealthy people will choose to live more frugal lifestyles in order to avoid taxes (many wealthy people already do so, for a variety of reasons). The reduced consumption might hurt the economy some, but they have to put their money somewhere, and that somewhere is generally some sort of investment, which helps the economy. The biggest problem with consumption-based taxes is that they tend to be highly regressive because there is generally an inverse relationship between income and the percent of income spent on consumption. However, there are ways to correct for this. You can target specific categories of goods which only the wealthy can afford (the aforementioned "yacht tax,"), but this tends to be very destructive to those industries and can cause big distortions throughout the rest of the economy. You can exempt certain categories of goods, such as groceries and other basic necessities, but this also creates huge distortions, and also creates a situation where industries buy politicians in order to get their products exempted. Another approach is to offer rebates equal to the consumption taxes paid by a typical low-income family, so that such families will pay zero net tax, but that's complex and expensive to administer.