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> It's not clear to me what "the returns should be file[d] automatically" means for [the self-employed]. The employer files the income forms and handles withho

> It's not clear to me what "the returns should be file[d] automatically" means for [the self-employed]. The employer files the income forms and handles withholding. If you're self-employed, that means you are responsible for that part. And of course anyone with more complex taxes (e.g. non-W2 income) would still need to file, though they could start with the pre-filled forms. > Last year I received a roughly US$3k tax credit because I installed a 6.6kW solar PV array on my house. There are dozens or even hundreds of cases like this in the US tax code. Yes, and all those special cases should be removed as part of the reform. If they want to hand out money as an incentive for installing a PV system (for example) then they should make that a separate application and payment, since this has nothing to do with collecting taxes. For business income you can subtract legitimate business expenses (since this is about income, not gross revenues), for capital gains you obviously subtract the cost basis, and for personal income you subtract the official poverty level for your household. (If there are multiple filers for one household then they split the deduction.) If the sum is less than zero then you simply pay no taxes—there are no refunds. That's it. No special surtaxes or exclusions. Apply a flat percentage to the total and you're done.

PaulDavisThe1st 5y ago
I agree absolutely [0]. This would fundamentally upend American policy making, but that's OK. Our elected representatives would have to decide to actively people money for doing things they want to promote rather, which would improve the transparency of legislative goal setting. [0] I don't agree about the flat percentage. The USA has had a progressive tax structure in various ways since its founding, and given the concept of marginal utility, I stronly believe that this is the right way to tax income.
- nybble41 5y ago
  > The USA has had a progressive tax structure in various ways since its founding… The system I described is still modestly "progressive" in the sense that those with more earnings pay a larger percentage than those with less, due to subtracting the poverty level. (Up to the poverty level, nothing is taxed; at 2X the poverty level, only half your total earnings are taxed; etc.) It starts at 0% and asymptotically approaches the flat rate as earnings increase. To be sure, it's not quite so heavily biased as the current tax tables, but then we also have this principle that the law is supposed to apply equally to everyone and not discriminate on the basis of wealth or status, in either direction. The current political environment targeting a small number of individuals for special taxes or punitive rates based on either their income or wealth practically amounts to a bill of attainder–which would obviously be unconstitutional, and for good reason.
  - PaulDavisThe1st 5y ago
    The concept of marginal utility says that taking different amounts from people with different levels of income/wealth is treating them the same. To a person who earns $10k/yr, $1k is huge (whether it is extra income or owed tax). To a person who earns $1M/yr, $1k is basically pocket change. The utility of that marginal $1k varies for them both. Ergo, to treat them equally, we tax them differently.
    - nybble41 5y ago
      > The concept of marginal utility says that taking different amounts from people with different levels of income/wealth is treating them the same. Marginal utility says that—most of the time–the utility of one more of an item to the owner is less than or equal to the utility of each item they already possess. (The exception would be where you need multiple items to do anything useful, but this is generally treated as a different kind of good rather than another of the same.) The concept of marginal utility says nothing about the relative utility of the same amount of money to different people. Utility is subjective, and there is no coherent concept of utility which applies across multiple individuals. It makes zero sense to say that some set amount of money is worth objectively more or less to different individuals based solely on how much they already own, much less on their earnings for a single year. > To a person who earns $[X]/yr… And here we have another issue: the assumption that earning some amount in one year—which is all the tax rules consider—is equivalent to earning that amount every year. Receiving ten years worth of income as a lump sum of $1M up front vs. $100k each year should not affect your tax rate, but in practice it does, which has various perverse implications. The law is biased in favor of regular, even income (W-2s), and against situations where you may earn a lot in one year and very little in others (e.g. running a small business).
      - PaulDavisThe1st 5y ago
        > It makes zero sense to say that some set amount of money is worth objectively more or less ... I think this is nonsense. We can't put a precise worth on it for different people, sure. But I think it's indisputable that there's a curve, we know it's rough shape, and that it's a reflection of marginal utility. The lack of labels or positions on the axes doesn't make that graph useless. > The concept of marginal utility says nothing about the relative utility of the same amount of money to different people. Sorry, but this is just completely wrong. Here's the most relevant paragraph from: https://commons.lib.niu.edu/bitstream/handle/10843/22650/12-2-373-Stein-pdfA.pdf?sequence=1&isAllowed=y https://commons.lib.niu.edu/bitstream/handle/10843/22650/12-... >The linchpin of The Uneasy Case is its rejection of the principle that income has diminishing marginal utility.' Diminishing marginal utility of income (DMUI) means that the greater a taxpayer's income, the less an additional dollar of income is worth to him. If DMUI holds, the government exacts a lesser sacrifice from a higher-income taxpayer, with each dollar taxed, than from a lower-income taxpayer. Moreover, any redistribution of income from a higher-income tax- payer to a lower-income taxpayer tends to increase aggregate welfare: The lower-income taxpayer derives greater utility from each dollar gained than 4 the higher-income taxpayer derives from each dollar surrendered. Now, to be fair, there are arguments against the DMUI case for progressive taxation. For example, here's Donald Boudreaux writing for the American Institute of Economic Research: https://www.aier.org/article/rich-man-poor-man-comparing-the-value-of-a-dollar-to-each/ https://www.aier.org/article/rich-man-poor-man-comparing-the... The fact that it's a terrible argument doesn't diminish the fact that it clearly recognizes that there is a case to be made for progressive taxation based on DMUI. Here's another one, equally bad: https://www.econlib.org/archives/2011/04/the_uneasy_case.html https://www.econlib.org/archives/2011/04/the_uneasy_case.htm... The key point here seems to be that even though DMUI is true, we don't know the actual numbers, and thus we should not act on it. As for your remarks about $1M in 1yr vs $100k for 10yrs ... well, sure the tax code is necessarily imperfect. Optimize it for people with one income patterns and you've made it worse for people with a different income pattern. Such is life ... perfection is not an option here.

PaulDavisThe1st 5y ago

I agree absolutely [0]. This would fundamentally upend American policy making, but that's OK. Our elected representatives would have to decide to actively people money for doing things they want to promote rather, which would improve the transparency of legislative goal setting. [0] I don't agree about the flat percentage. The USA has had a progressive tax structure in various ways since its founding, and given the concept of marginal utility, I stronly believe that this is the right way to tax income.

nybble41 5y ago
> The USA has had a progressive tax structure in various ways since its founding… The system I described is still modestly "progressive" in the sense that those with more earnings pay a larger percentage than those with less, due to subtracting the poverty level. (Up to the poverty level, nothing is taxed; at 2X the poverty level, only half your total earnings are taxed; etc.) It starts at 0% and asymptotically approaches the flat rate as earnings increase. To be sure, it's not quite so heavily biased as the current tax tables, but then we also have this principle that the law is supposed to apply equally to everyone and not discriminate on the basis of wealth or status, in either direction. The current political environment targeting a small number of individuals for special taxes or punitive rates based on either their income or wealth practically amounts to a bill of attainder–which would obviously be unconstitutional, and for good reason.
- PaulDavisThe1st 5y ago
  The concept of marginal utility says that taking different amounts from people with different levels of income/wealth is treating them the same. To a person who earns $10k/yr, $1k is huge (whether it is extra income or owed tax). To a person who earns $1M/yr, $1k is basically pocket change. The utility of that marginal $1k varies for them both. Ergo, to treat them equally, we tax them differently.
  - nybble41 5y ago
    > The concept of marginal utility says that taking different amounts from people with different levels of income/wealth is treating them the same. Marginal utility says that—most of the time–the utility of one more of an item to the owner is less than or equal to the utility of each item they already possess. (The exception would be where you need multiple items to do anything useful, but this is generally treated as a different kind of good rather than another of the same.) The concept of marginal utility says nothing about the relative utility of the same amount of money to different people. Utility is subjective, and there is no coherent concept of utility which applies across multiple individuals. It makes zero sense to say that some set amount of money is worth objectively more or less to different individuals based solely on how much they already own, much less on their earnings for a single year. > To a person who earns $[X]/yr… And here we have another issue: the assumption that earning some amount in one year—which is all the tax rules consider—is equivalent to earning that amount every year. Receiving ten years worth of income as a lump sum of $1M up front vs. $100k each year should not affect your tax rate, but in practice it does, which has various perverse implications. The law is biased in favor of regular, even income (W-2s), and against situations where you may earn a lot in one year and very little in others (e.g. running a small business).
    - PaulDavisThe1st 5y ago
      > It makes zero sense to say that some set amount of money is worth objectively more or less ... I think this is nonsense. We can't put a precise worth on it for different people, sure. But I think it's indisputable that there's a curve, we know it's rough shape, and that it's a reflection of marginal utility. The lack of labels or positions on the axes doesn't make that graph useless. > The concept of marginal utility says nothing about the relative utility of the same amount of money to different people. Sorry, but this is just completely wrong. Here's the most relevant paragraph from: https://commons.lib.niu.edu/bitstream/handle/10843/22650/12-2-373-Stein-pdfA.pdf?sequence=1&isAllowed=y https://commons.lib.niu.edu/bitstream/handle/10843/22650/12-... >The linchpin of The Uneasy Case is its rejection of the principle that income has diminishing marginal utility.' Diminishing marginal utility of income (DMUI) means that the greater a taxpayer's income, the less an additional dollar of income is worth to him. If DMUI holds, the government exacts a lesser sacrifice from a higher-income taxpayer, with each dollar taxed, than from a lower-income taxpayer. Moreover, any redistribution of income from a higher-income tax- payer to a lower-income taxpayer tends to increase aggregate welfare: The lower-income taxpayer derives greater utility from each dollar gained than 4 the higher-income taxpayer derives from each dollar surrendered. Now, to be fair, there are arguments against the DMUI case for progressive taxation. For example, here's Donald Boudreaux writing for the American Institute of Economic Research: https://www.aier.org/article/rich-man-poor-man-comparing-the-value-of-a-dollar-to-each/ https://www.aier.org/article/rich-man-poor-man-comparing-the... The fact that it's a terrible argument doesn't diminish the fact that it clearly recognizes that there is a case to be made for progressive taxation based on DMUI. Here's another one, equally bad: https://www.econlib.org/archives/2011/04/the_uneasy_case.html https://www.econlib.org/archives/2011/04/the_uneasy_case.htm... The key point here seems to be that even though DMUI is true, we don't know the actual numbers, and thus we should not act on it. As for your remarks about $1M in 1yr vs $100k for 10yrs ... well, sure the tax code is necessarily imperfect. Optimize it for people with one income patterns and you've made it worse for people with a different income pattern. Such is life ... perfection is not an option here.