Voting 2008...

[Imp-Chan]

It's worth noting that while there may be no direct sale of items to compensate for the tax increase, there are other means that may be exercised to compensate for it by changing spending habits, all of which would have an effect on the economy as a whole.

^-^'

[Sareth]

Boss Out of Town: AH! That helped a good deal. Thanks!

Impy: Good point. There is always a way, I suspect, though that may well be cynacism on my part.

So let me ask another question. Am I the only one who objects to a tax system that is inequal before the law? (Remember... Libertarian. Heh.)

[mindstalk]

Boss Out of Town: AH! That helped a good deal. Thanks!

Impy: Good point. There is always a way, I suspect, though that may well be cynacism on my part.

So let me ask another question. Am I the only one who objects to a tax system that is inequal before the law? (Remember... Libertarian. Heh.)

Ah, but what's the standard of fairness/equality to use? Dollar amount? Percentage of income? Impact on one's quality of life, with diminishing marginal return (your second million is less important than your first 10,000) taken into account?

Finland has fines based on %age of income or wealth (not sure which), on the grounds that fixed amounts just lets the rich defy the law with impunity.

We all benefit equally from government protecting our lives, but protection of property benefits more those who have a lot of property to protect. Looked at as user fees, the first might call for a poll tax, but the second would call for a wealth tax, which might or might not be 'flat' (constant percentage). Then there's welfare... the poor benefit directly, but by definition don't have money to tax; the rich benefit by keeping the poor not desperate enough to turn to crime or revolution. Does someone with 2x as much money benefit 2x as much, or benefit even more, since they'd stand out more as a target?

Then you've got badly underused pollution taxes, which would be proportional to pollution, and land tax probably being proportional to land value (flat), though Jefferson suggested progressive land tax, which would make the rich pay even more and/or encourage the breaking up of large holdings.

[Sareth]

Well, first, the simpler the better, in my honest opinion. Currently the U.S. tax code is so increadibly convoluted the wealthy can almost completely avoid paying taxes through the auspices of a good tax lawyer finding the multitude of holes created by so many exemptions and conflicting obligations. So for me, arguments for increasing the tax burden on the richest strata falls flat, as I see that as simply adding more complexity to a system that is already sievelike in it's ability to hold back the flow of lost tax revenue.

As I see it, a flat tax is far prefereable as it's pretty hard for a tax lawyer to find examptions to a law that says in it's entirity "All citizens shall pay 20% of their income to the state." I mean... how do you get around that?

As to fairness... The idea that one person is expected to pay out 40% of their income, while another pays 0%, based exclusively off of the size of their paycheck violates my idea that all people are equal. It says it's right and proper to burden one person heavily with the bill of state, while the other person has no such obligation, even though both recieve the protection of the police, the courts, the military... There is another problem with a progressive tax, one that nailed me this year. Thanks to the tier system, my take home pay has been lower this year because a raise I got just edged me into a higher tax bracket. Just as the economy has tanked and gas prices went up, my ability to pay for things dropped.

Again, I consider a flat tax to be more fair, as all people are given the exact same standard. X% of their income goes to the state. Period. Everyone chips into supporting the state equally not in absolute dollars, but in terms of percentage. And it also doesn't result in a one step forward, two steps back in people's economic fortunes. You get a raise, you still keep 80% of that raise, rather than find yourself paying the state 1.5 times the amount of the raise.

Now, the big argument against a flat tax (and one that makes sense) is the impact it would have on the poor. After all, if you are already struggling to make ends meet because of how poor you are, suddenly having to pay 20% of your income could leave you starving. Fair or not, that's a problem. Only solution I really have to that that continues to seem fair to me is to replace our current tax code with a flat SALES tax. By doing that, we can exempt food and medical expenses from being taxed. Since food and medical care are matters of life and death, and where most of the poor are going to spend their money, this essentially allows them to avoid starving just to pay their taxes, while at the same time giving rich people the exact same treatement as they. The rich are given the exact same exemptions as the poor. Sure, the rich will buy more, and more expensive food, and still be exempted. But they also will be paying buttloads on all those luxuries the poor won't be buying (but could if they somehow got the money.) Of course, a flat sales tax has the downside that it encourages people to save money, rather than put it back into circulation, but there's no such thing as a perfect system.

Of course, again, not being really an economic brain, I could be totally talking out of my ass here.

[mindstalk]

A progressive tax can be really simple too. "Pay 0% on the first $10,000 of income, 10% on the next $20,000, 20% on the next $50,000 ... 50% on everything over a million." The complexity does not come from flat vs. progressive. The complexity comes from defining what is income in the first place, and from various exemptions. Wages vs. interest vs. capital gains vs. business depreciation vs. business income minus costs vs. dividends vs. municipal bonds vs. being married vs. exemptions for kids or other dependents vs. charity vs. state tax refunds (income?) vs. farm income etc. Flat tax isn't going to be magically immune to all that because people's concerns about farmers and stock flipping and dependents and charity will still be live issues.

And you really shouldn't be getting less take-home with higher gross income, precisely because of the tiers. The higher tax rates are marginal, on income above a certain amount; they don't retroactively raise taxes on the lower income. As in my example above. AMT (alternative minimum tax) might be an exception, since I don't know anything about it and it has a bad rep.

The one thing about progressive tax is that it punishes lumpy income: $100,000 one year and none the next pays more tax than $50,000 in each of two years. OTOH, people need to eat every year, so basic progressiveness (e.g. exemption on the first $10,000) seems unavoidable. And there might be tax complexity precisely to let people try to even out such lumpiness.

[Sareth]

And you really shouldn't be getting less take-home with higher gross income, precisely because of the tiers. The higher tax rates are marginal, on income above a certain amount; they don't retroactively raise taxes on the lower income.

Oh, I'm not saying I got hit retroactively. Not at all. I'm just saying I was just below one of the tiers last tax season (by a matter of a couple hundred bucks) and now I'm just over it this season (by a couple hundred bucks) for a result of me actually ending up paying a good couple grand more in taxes this year than last year. From this point onward I should be able to keep any raises I make nicely, but I did experience a net loss directly related to the increased tax caused by my raise.

Just one of those things I guess.

As for the problems with defining income, I'd call that another good reason to replace income tax with a sales tax. Not much dispute about what constitutes a monetary transaction. Did money change hands in exchange for services or goods? It's a transaction. (Of course, then one gets to dealing with questions of dealing with sales in cases like things sold using a classified ad, or between friends. How do you tax those?)

[mindstalk]

I still don't see how you could suffer a net loss. The new income gets taxed at a higher rate but you still get more money than you had before.

Sales tax enough to fund modern government would be pretty steep. European countries often use VAT but I think they use income as well. Sales taxes encourage large corporations, since in-firm transfers don't get taxed but sales between firms do... Most taxes have distorting effects, but I think income might be less distorting; land value tax is supposed to be minimally distorting, though it's usually not used much, outside of Hong Kong.

[Sareth]

Here, I'll give an example of what I mean. The numbers are made up and simplified (because dredging through the real tax code and my W2s sounds about as fun as pancreatic cancer) but it should demonstrate the principle.

Let's say at $1,000 some get's taxed 10%. Then when he hit $2,000 the rate jumps to 15%.

Now let's say a person received $1,990 one year. He's in the 10% bracket. He ends up paying $199 in taxes. He takes home $1,791.

Next year, he got a raise, Now he's receiving $2,050. He gets bumped up to the 15% bracket He ends up paying $307.50 in taxes. He takes home $1,742.50.

Because of his raise, this person ended up with $48.50 LESS than if he hadn't gotten the raise.

That's what happened to me this year.

Simple 'nuff?

[Graybeard]

Here, I'll give an example of what I mean. The numbers are made up and simplified (because dredging through the real tax code and my W2s sounds about as fun as pancreatic cancer) but it should demonstrate the principle.

Let's say at $1,000 some get's taxed 10%. Then when he hit $2,000 the rate jumps to 15%.

Now let's say a person received $1,990 one year. He's in the 10% bracket. He ends up paying $199 in taxes. He takes home $1,791.

Next year, he got a raise, Now he's receiving $2,050. He gets bumped up to the 15% bracket He ends up paying $307.50 in taxes. He takes home $1,742.50.

Because of his raise, this person ended up with $48.50 LESS than if he hadn't gotten the raise.

That's what happened to me this year.

Simple 'nuff?

Simple, but incorrect. With the actual (USA) income-tax system, what happens is that you pay something like 5% on your first $10,000, 10% on the NEXT $10000, 15% on the $10000 after that, and so on. (Needless to say, these aren't the actual figures, but they illustrate how it works.) So suppose you make $19,900 one year and $20,100 the next, exclusive of deductions, etc. The first year, you pay 5% of $10,000 plus 10% of $9,900, for $1490 total, leaving you with $18,410 of take-home if I do my math correctly. The second year, it's 5% of $10,000, 10% of $10,000, and 15% of $100, for $1515 total, leaving you with $18,585 of take-home. Moving to a "higher bracket" only levies taxes at a higher rate on that part of the income that places you in the higher bracket -- and since the taxes never exceed 100% (although sometimes it feels that way...), you can't lose money by it.

What happened to you must have been something in addition to bracket creep. The tax laws change so much from year to year that "past performance is not a predictor of future success," as the financial advisors put it.

[Boss Out of Town]

Sales tax enough to fund modern government would be pretty steep. European countries often use VAT but I think they use income as well. Sales taxes encourage large corporations, since in-firm transfers don't get taxed but sales between firms do... Most taxes have distorting effects, but I think income might be less distorting; land value tax is supposed to be minimally distorting, though it's usually not used much, outside of Hong Kong.

The main reason we've never had a national sales tax (other then "sin taxes" and other specialty items) is that it is horribly regressive and inefficient. The vast majority of people have economic activity that consists only of wages, purchases, and a small amount of interest income. They tend to save very little of their income and spend most of it on necessities, paying sales tax on all of it. People higher up the economic ladder spend a small fraction of it on necessities, and a good share of their income and output is in various kinds of securities and other paper transactions. A sales tax can only tap into that revenue source if a lot of transactions are considered "sales" that don't fall under the standard definition. Therefore, the sales tax isn't simple anymore and manipulation of the law by wealthy factions pretty much guarantees that it will not collect remotely as much revenue as other kinds of taxes. Even if some provision is made to secure revenues from the wealthy classes, they still will be paying a much smaller fraction of the income in taxes.