6 ms·

I never understood why taxes or similiar absolute points aren't gradients instead.

by hsuduebc2 4mo ago

KylerAce 4mo ago
Because that's harder to write the laws for
- PaulDavisThe1st 4mo ago
  Not if you assume people could understand basic math, such ... oh, any continuously valued polynomial ....
- TimorousBestie 4mo ago
  I hear this explanation a lot but I think it's a convenient fiction. Lawmakers, at least in the US, don't seem to write their own legal texts very often. Sometimes they don't even read them [1]! Congress has no problem producing monstrously complicated laws, in any case. I think it's likely that politicians and their funding sources have found ways to profit off of these discontinuities. The infamous Medicare "donut hole" [2] was arguably a "benefit discontinuity" of the sort mentioned by the author and pharmaceutical companies profited off of it (more than a hypothetical Medicare structure without a donut hole, not relative to the spending cap that replaced it—which profits them even more). [1] https://www.pennstatelawreview.org/penn-statim/dont-be-silly-lawmakers-rarely-read-legislation-and-oftentimes-dont-understand-it-but-thats-okay/ https://www.pennstatelawreview.org/penn-statim/dont-be-silly... (2013) ...which argues that this is a good thing! [2] https://www.medicalnewstoday.com/articles/what-is-the-medicare-donut-hole https://www.medicalnewstoday.com/articles/what-is-the-medica...
blharr 4mo ago
I think because the gradient is simply too confusing for laypeople to understand. Even for a simple system like US social security that has a gradient. For every $2 you make over the limit, you lose $1 in benefits. I've heard countless times misconceptions of people thinking they'd be losing money (as in literally having less money net) by working.
- bostik 4mo ago
  This does happen in Finnish tax system. Your tax rate (percent with one decimal) is calculated based on your annual gross income. Rates are supposed to be calculated smoothly, and they are certainly calculated for each individual separately. In reality they are step functions. It is surprisingly common to have people refuse promotions because if would put them above an income tax threshold, bump up their rate, and end up with less money after taxes in the end. The UK tax system is far from fair but at least it has clear brackets: income above threshold X is taxed at rate Y.
  - degamad 4mo ago
    Are you talking about this tax system? <https://nordisketax.net/pages/en-GB/taxation/?country=finland&topic=tax-rates https://nordisketax.net/pages/en-GB/taxation/?country=finlan...> Because that is a marginal system, (and unless they've messed up the calculations, which they haven't in this case) you should never end up with less from earning more. Can you give an example of two income amounts where the lower income ends up with more money after-taxes than the higher income? Or is it the additional municipal, church, or health levies mentioned on that page which have the discontinuities?
  - zipy124 4mo ago
    The UK system doesn't either though. The rate for 100-125k is higher than for 125k+ due to the phasing out of the personal allowance. It gets worse if you have kids and can even result in a >100% marginal rate.
  - procaryote 4mo ago
    I've encountered people talking about turning down a promotion to not "get above a tax bracket". They have invariably been wrong and just not understood the basic math, or done any research. Lacking those basic skills might be a reason not to promote someone though, so perhaps it all works out for the best
  - eonwe 3mo ago
    This does NOT happen with Finnish tax rate. Your marginal tax rate can jump but that only for the euros after that bump. Your total tax rate goes up in more slowly. You’re always better off with the extra euro of income. See graph here: https://www.veronmaksajat.fi/tutkimus-ja-tilastot/tuloverot/palkansaajan-veroprosentit/ https://www.veronmaksajat.fi/tutkimus-ja-tilastot/tuloverot/...
marcosdumay 4mo ago
It's very well established internationally that income taxes are defined by gradients. I have no idea why politicians want to reinvent them so often in other kinds of taxes.
tmoertel 4mo ago
Why do we have legislated cliffs instead of gradients? Because approximately nobody understands lerp. And linear interpolation is the simplest (nontrivial) gradient scheme. Consequently, we get cliffs or, if we're lucky, lookup tables that approximate gradients with stair-step successions of small cliffs.
- bee_rider 4mo ago
  This isn’t a very satisfying explanation to me. I mean, the idea of a cliff causing bad incentives is extremely widely understood (to the point where people under progressive taxation policies avoid taking overtime because they misunderstand the policy and believe the cliff to be there). I wonder why we don’t define these things in terms of logistic functions or something. That’s high school or at least first semester college math, right?
Georgelemental 4mo ago
It's especially hard when you have a combination of many government programs at all levels (federal, state, local, many different kinds of taxes, many different kinds of welfare). Even if every individual program uses a gradient, it's still possible that summing all the programs together leads to a >100% effective marginal tax rate.
gs17 4mo ago
I was surprised to see the "Big Beautiful Bill" tax incentive for financing a new US-made car had a gradual phase out above $100,000, although it's implemented as a step function instead of a linear one.
bjt 4mo ago
Sometimes they are. The US Earned Income Tax Credit being probably the biggest example. https://taxfoundation.org/research/all/federal/earned-income-tax-credit-eitc/ https://taxfoundation.org/research/all/federal/earned-income...

I never understood why taxes or similiar absolute points aren't gradients instead.

KylerAce 4mo ago

Because that's harder to write the laws for

PaulDavisThe1st 4mo ago
Not if you assume people could understand basic math, such ... oh, any continuously valued polynomial ....
TimorousBestie 4mo ago
I hear this explanation a lot but I think it's a convenient fiction. Lawmakers, at least in the US, don't seem to write their own legal texts very often. Sometimes they don't even read them [1]! Congress has no problem producing monstrously complicated laws, in any case. I think it's likely that politicians and their funding sources have found ways to profit off of these discontinuities. The infamous Medicare "donut hole" [2] was arguably a "benefit discontinuity" of the sort mentioned by the author and pharmaceutical companies profited off of it (more than a hypothetical Medicare structure without a donut hole, not relative to the spending cap that replaced it—which profits them even more). [1] https://www.pennstatelawreview.org/penn-statim/dont-be-silly-lawmakers-rarely-read-legislation-and-oftentimes-dont-understand-it-but-thats-okay/ https://www.pennstatelawreview.org/penn-statim/dont-be-silly... (2013) ...which argues that this is a good thing! [2] https://www.medicalnewstoday.com/articles/what-is-the-medicare-donut-hole https://www.medicalnewstoday.com/articles/what-is-the-medica...

blharr 4mo ago

I think because the gradient is simply too confusing for laypeople to understand. Even for a simple system like US social security that has a gradient. For every $2 you make over the limit, you lose $1 in benefits. I've heard countless times misconceptions of people thinking they'd be losing money (as in literally having less money net) by working.

bostik 4mo ago
This does happen in Finnish tax system. Your tax rate (percent with one decimal) is calculated based on your annual gross income. Rates are supposed to be calculated smoothly, and they are certainly calculated for each individual separately. In reality they are step functions. It is surprisingly common to have people refuse promotions because if would put them above an income tax threshold, bump up their rate, and end up with less money after taxes in the end. The UK tax system is far from fair but at least it has clear brackets: income above threshold X is taxed at rate Y.
- degamad 4mo ago
  Are you talking about this tax system? <https://nordisketax.net/pages/en-GB/taxation/?country=finland&topic=tax-rates https://nordisketax.net/pages/en-GB/taxation/?country=finlan...> Because that is a marginal system, (and unless they've messed up the calculations, which they haven't in this case) you should never end up with less from earning more. Can you give an example of two income amounts where the lower income ends up with more money after-taxes than the higher income? Or is it the additional municipal, church, or health levies mentioned on that page which have the discontinuities?
- zipy124 4mo ago
  The UK system doesn't either though. The rate for 100-125k is higher than for 125k+ due to the phasing out of the personal allowance. It gets worse if you have kids and can even result in a >100% marginal rate.
- procaryote 4mo ago
  I've encountered people talking about turning down a promotion to not "get above a tax bracket". They have invariably been wrong and just not understood the basic math, or done any research. Lacking those basic skills might be a reason not to promote someone though, so perhaps it all works out for the best
- eonwe 3mo ago
  This does NOT happen with Finnish tax rate. Your marginal tax rate can jump but that only for the euros after that bump. Your total tax rate goes up in more slowly. You’re always better off with the extra euro of income. See graph here: https://www.veronmaksajat.fi/tutkimus-ja-tilastot/tuloverot/palkansaajan-veroprosentit/ https://www.veronmaksajat.fi/tutkimus-ja-tilastot/tuloverot/...

marcosdumay 4mo ago

It's very well established internationally that income taxes are defined by gradients. I have no idea why politicians want to reinvent them so often in other kinds of taxes.

tmoertel 4mo ago

Why do we have legislated cliffs instead of gradients? Because approximately nobody understands lerp. And linear interpolation is the simplest (nontrivial) gradient scheme. Consequently, we get cliffs or, if we're lucky, lookup tables that approximate gradients with stair-step successions of small cliffs.

bee_rider 4mo ago
This isn’t a very satisfying explanation to me. I mean, the idea of a cliff causing bad incentives is extremely widely understood (to the point where people under progressive taxation policies avoid taking overtime because they misunderstand the policy and believe the cliff to be there). I wonder why we don’t define these things in terms of logistic functions or something. That’s high school or at least first semester college math, right?

Georgelemental 4mo ago

It's especially hard when you have a combination of many government programs at all levels (federal, state, local, many different kinds of taxes, many different kinds of welfare). Even if every individual program uses a gradient, it's still possible that summing all the programs together leads to a >100% effective marginal tax rate.

gs17 4mo ago

I was surprised to see the "Big Beautiful Bill" tax incentive for financing a new US-made car had a gradual phase out above $100,000, although it's implemented as a step function instead of a linear one.

bjt 4mo ago

Sometimes they are. The US Earned Income Tax Credit being probably the biggest example. https://taxfoundation.org/research/all/federal/earned-income-tax-credit-eitc/ https://taxfoundation.org/research/all/federal/earned-income...