5 ms·

Because the capital that you invest has been taxed before, when it was earned. Kind of harsh to tax 40% on your income, and when you save it, tax again the same

by dkyc 12y ago

Because the capital that you invest has been taxed before, when it was earned. Kind of harsh to tax 40% on your income, and when you save it, tax again the same amount on your returns.

nasmorn 12y ago
So is Sales tax which regressively Hits the poor the hardestas they spend 100% of income. This is a non argument. Tax what least inhibits growth or like alcohol and cigarette taxes things that you would like to be used less.
- yummyfajitas 12y ago
  If savers eventually consume whatever they saved, they too will be hit by the sales tax. Their tax rate will be 1-(1-Income tax)(1-savings tax)(1-sales tax), compared to the consumer who will pay only 1-(1-Income tax)(1-sales tax). If they never consume what they saved, they have effectively given it to society anyway. The idea that a sales tax is regressive (w.r.t income) is simply an artifact of your measurement period. It's strictly speaking a flat tax over the long term, but it becomes regressive for a single individual if you break his lifetime up into year-long chunks and if his income or consumption isn't stable. tl;dr; do the math, the "sales tax is regressive" meme is silly. Any true regressivity is solely an artifact of progressive income taxes and vanishes when you measure progressivity w.r.t. after-tax income.
  - Retric 12y ago
    You don't pay sales tax on services. Weathly people spend more of there income on ex maids than poor people. At the extreme a bum might pay sales tax on all of there income. Also of note 'charitable' giving is just another form of spending and avoids both sales and income taxes. Feel like Promoting Scientology to dogs? Feel free to avoid paying taxes.
    - yummyfajitas 12y ago
      I agree that taxing different forms of consumption at different rates may have a non-zero effect. That's orthogonal to the point I was making and applies to taxes on saving and production as well. You don't pay sales tax on services. Weathly people spend more of there income on ex maids than poor people. Poor people spend a larger fraction of their income on doctors than rich people. If you have numbers present them, but singling out a single stereotypically rich category of spending is silly.
      - Retric 12y ago
        Depends on what you mean by poor and rich. Plenty of people avoid seeking medical attention because they really can't afford it. Statistically, those in the bottom 20% of income earners spend significantly more of there income on sales tax than the top 50% or top 1% or top 0.1%.
  - yequalsx 12y ago
    In terms of what the phrase "regressive tax" colloquially means it is clear that sales tax is a regressive tax. The percent of wealth poor person pays in sales tax is greater than the percent of wealth a rich person pays in sales tax. Of course if the poor person wins a billion dollar lottery the next day then for that person it is no longer true. Thus, this is why when talking about this issue it generally is the case that we are talking about the here and now and don't factor in lifetime earnings and whatnot.
    - yummyfajitas 12y ago
      Colloquially, "progressive" usually means "w.r.t. income". I.e., dMarginalTaxRate/dIncome is positive. By definition, a sales tax is not regressive w.r.t wealth - dMarginalSalesTaxRate/dWealth = 0. The fact that consumption / wealth goes down up as money is shifted from savings to consumption is simply a mathematical identity and not very interesting. I.e.: (consumption + 1) / (wealth - 1) > consumption / wealth
      - yequalsx 12y ago
        The percent of income (let's include capital gains for the year since this is where really rich people derive the increase in their 'money') paid in sales tax by a rich person is far less than that of a poor person for a given year. Thus, in the minds of the general populace, sales tax is considered regressive. This is what people mean when they say this. The effect of a sales tax on food for a poor person is far more detrimental to them than a sales tax on food for a rich person. Thus many people find this to be regressive.
        yummyfajitas 12y ago
        As I said, the idea that a sales tax is regressive is simply an artifact of your measurement period. The "rich person" you describe is simply a saver - at some future point he will become a consumer. Literally the only reason the tax appears regressive in year A is because the act of saving has shifted the taxes to year B > A. This is an artifact of your measurement period and vanishes in the long term.
yequalsx 12y ago
All money is taxed ad infinitum so to speak. Reagan believed the tax on capital should be more than the tax on labor. On this I think he was right. That wealthy people pay a smaller effective tax rate that someone making $50,000 a year is quite unfair to many people.
rayiner 12y ago
How so? The $100 you invest that turns into $120 isn't taxed again. Only the gain of $20 is taxed.
- harryh 12y ago
  You might enjoy: http://www.thebigquestions.com/2010/01/27/a-quick-economics-lesson/ http://www.thebigquestions.com/2010/01/27/a-quick-economics-...
  - rayiner 12y ago
    I remember doing that calculation in my tax class, and obviously the logic there is sound given the implicit premise that over a long enough time interval, all saving is just deferred consumption. My nit is: if that's what we're going to do, we might as well just have a consumption tax. The U.S. income tax isn't designed to be a consumption tax, it's designed to be a tax on gains in wealth.
    - harryh 12y ago
      I'm not convinced that the US income tax is really designed at all. I think it mostly just grew out of what was politically feasible.
      - rayiner 12y ago
        Taxing income as opposed to something else was the result of political feasibility, and of course most of the additions to the basic framework don't really have a good rationale. But there is a framework there that has some internal logic to it: https://archive.org/stream/cu31924020062935#page/n7/mode/2up https://archive.org/stream/cu31924020062935#page/n7/mode/2up.

by dkyc 12y ago

Because the capital that you invest has been taxed before, when it was earned. Kind of harsh to tax 40% on your income, and when you save it, tax again the same amount on your returns.

nasmorn 12y ago

So is Sales tax which regressively Hits the poor the hardestas they spend 100% of income. This is a non argument. Tax what least inhibits growth or like alcohol and cigarette taxes things that you would like to be used less.

yummyfajitas 12y ago
If savers eventually consume whatever they saved, they too will be hit by the sales tax. Their tax rate will be 1-(1-Income tax)(1-savings tax)(1-sales tax), compared to the consumer who will pay only 1-(1-Income tax)(1-sales tax). If they never consume what they saved, they have effectively given it to society anyway. The idea that a sales tax is regressive (w.r.t income) is simply an artifact of your measurement period. It's strictly speaking a flat tax over the long term, but it becomes regressive for a single individual if you break his lifetime up into year-long chunks and if his income or consumption isn't stable. tl;dr; do the math, the "sales tax is regressive" meme is silly. Any true regressivity is solely an artifact of progressive income taxes and vanishes when you measure progressivity w.r.t. after-tax income.
- Retric 12y ago
  You don't pay sales tax on services. Weathly people spend more of there income on ex maids than poor people. At the extreme a bum might pay sales tax on all of there income. Also of note 'charitable' giving is just another form of spending and avoids both sales and income taxes. Feel like Promoting Scientology to dogs? Feel free to avoid paying taxes.
  - yummyfajitas 12y ago
    I agree that taxing different forms of consumption at different rates may have a non-zero effect. That's orthogonal to the point I was making and applies to taxes on saving and production as well. You don't pay sales tax on services. Weathly people spend more of there income on ex maids than poor people. Poor people spend a larger fraction of their income on doctors than rich people. If you have numbers present them, but singling out a single stereotypically rich category of spending is silly.
    - Retric 12y ago
      Depends on what you mean by poor and rich. Plenty of people avoid seeking medical attention because they really can't afford it. Statistically, those in the bottom 20% of income earners spend significantly more of there income on sales tax than the top 50% or top 1% or top 0.1%.
- yequalsx 12y ago
  In terms of what the phrase "regressive tax" colloquially means it is clear that sales tax is a regressive tax. The percent of wealth poor person pays in sales tax is greater than the percent of wealth a rich person pays in sales tax. Of course if the poor person wins a billion dollar lottery the next day then for that person it is no longer true. Thus, this is why when talking about this issue it generally is the case that we are talking about the here and now and don't factor in lifetime earnings and whatnot.
  - yummyfajitas 12y ago
    Colloquially, "progressive" usually means "w.r.t. income". I.e., dMarginalTaxRate/dIncome is positive. By definition, a sales tax is not regressive w.r.t wealth - dMarginalSalesTaxRate/dWealth = 0. The fact that consumption / wealth goes down up as money is shifted from savings to consumption is simply a mathematical identity and not very interesting. I.e.: (consumption + 1) / (wealth - 1) > consumption / wealth
    - yequalsx 12y ago
      The percent of income (let's include capital gains for the year since this is where really rich people derive the increase in their 'money') paid in sales tax by a rich person is far less than that of a poor person for a given year. Thus, in the minds of the general populace, sales tax is considered regressive. This is what people mean when they say this. The effect of a sales tax on food for a poor person is far more detrimental to them than a sales tax on food for a rich person. Thus many people find this to be regressive.
      - yummyfajitas 12y ago
        As I said, the idea that a sales tax is regressive is simply an artifact of your measurement period. The "rich person" you describe is simply a saver - at some future point he will become a consumer. Literally the only reason the tax appears regressive in year A is because the act of saving has shifted the taxes to year B > A. This is an artifact of your measurement period and vanishes in the long term.

yequalsx 12y ago

All money is taxed ad infinitum so to speak. Reagan believed the tax on capital should be more than the tax on labor. On this I think he was right. That wealthy people pay a smaller effective tax rate that someone making $50,000 a year is quite unfair to many people.

rayiner 12y ago

How so? The $100 you invest that turns into $120 isn't taxed again. Only the gain of $20 is taxed.

harryh 12y ago
You might enjoy: http://www.thebigquestions.com/2010/01/27/a-quick-economics-lesson/ http://www.thebigquestions.com/2010/01/27/a-quick-economics-...
- rayiner 12y ago
  I remember doing that calculation in my tax class, and obviously the logic there is sound given the implicit premise that over a long enough time interval, all saving is just deferred consumption. My nit is: if that's what we're going to do, we might as well just have a consumption tax. The U.S. income tax isn't designed to be a consumption tax, it's designed to be a tax on gains in wealth.
  - harryh 12y ago
    I'm not convinced that the US income tax is really designed at all. I think it mostly just grew out of what was politically feasible.
    - rayiner 12y ago
      Taxing income as opposed to something else was the result of political feasibility, and of course most of the additions to the basic framework don't really have a good rationale. But there is a framework there that has some internal logic to it: https://archive.org/stream/cu31924020062935#page/n7/mode/2up https://archive.org/stream/cu31924020062935#page/n7/mode/2up.