All the people that go on about incentive and the open market amaze me when they claim that it's a disincentive for people to work when you lose say, 50% over some high amount.
Once you have a ton of wealth, it just becomes relatively worthless to you. People with a ton of wealth don't add (significant) value except by providing that wealth to others, which then nets them even more.
We should be trying to limit the ability to just continually accrue wealth. At some point it stops serving society for an individual to have more. The incentive is gone - no one is not going to try because if they are so successful they earn over $10m say, they will not get any more.
It’s not fair that I should pay 30% tax on my minimum wage part-time Algebra tutoring job just because my software internship earlier in the year had a high salary. And yes, it did serve as a disincentive to work and I quit that job and the students had to make do with what I assume was a marginally worse tutor at the same price.
Similarly it’s unfair that if I do a three month software contract and then go off to Mexico to surf for the rest of the year, I pay the same low tax rate as someone who works hard all year to make the same amount and has to pay high cost of living in the US the entire time.
Investments that produce positive returns are the primary mechanism by which productivity increases. Productivity gains explain almost all of the rise in standard of living experienced throughout human existence.
Centrally planned economies don't make these considerations and languish in productivity as a result.
The wealth generated should go to the investor who earned it.
>>or even automate rich people out of their jobs.
Go right ahead. Any automated tool you create that can effectively identify investment opportunities would be a enormous boon to humanity.
What you'll find as you grow more familiar with how an economy works is that investment is a dynamic, ever-changing process, and individual initiative and enterprise is always necessary to make it happen.
Many people make the mistake you're making now, of taking for granted the process of managing and allocating capital, because they don't understand how enormously complex the task is.
As for efficiency, you're overestimating how efficient political establishments can be in comparison. Just because a plan calls for the government to act efficiently, in the interest of the public, doesn't mean that this is what actually happens.
All of the tendencies toward waste and corruption seen in the market are manifested in politically appointed institutions as well. Private sector investment has been demonstrated to be the best way to increase productivity, and to be far more effective than politically directed management of economic assets.
If you pay an employee that's a payment/purchase, if you buy food that's a payment/purchase, if you put money in an investment the broker fee is taxed, and when you get money back the increase is taxed.
When you buy a home, plane, apartment, land, car, all taxed at the same rate of 10% or so... (whatever is decided).
Since GBI would help lift a lot of people up, more people could then afford the sales tax. PErhaps we could also have a tax discount card which basically just proves U.S. citizenship so travelers to America essentially pay a 'tarriff' for being in the country. Instead of kicking out illegals then - they'd simply be paying more for groceries and not getting GBI because they're not citizens.
Obviously there's room here for discussion on what should/shouldn't be considered a purchase/sale and what not, but it needs to also possibly grab more from the rich, for instance maybe every dollar put into an offshore account is taxed at some rate, or maybe have also a 3% tax on a person's total net worth over 100k.
All existing taxes are eliminated and replaced by a sales tax. The tax rate can optionally be set differently per product category (e.g. you could set the tax rate on public transit tickets to zero as a subsidy, or impose a higher tax rate on cigarettes as a deterrent).
Then, crucially, the tax rate of a company depends on the ratio of employees and revenue. For example [1], if you have 5 employees per 1m € revenue, that's not enough and your tax rate will be high. Astronomically high, actually. Maybe 200%. No one in their right mind would want to pay these tax rates. So they have to put more people on the payrool. Once they have, say, 7 employees per million € in revenue, the tax rate moves down to a reasonable level.
So the idea is that employees are tax-deductible (to a certain point). The obvious criticism is that some companies (esp. tech companies) need way less employees than others. Should they employ tons of useless workers? No. Instead, they shall employ people that don't actually work for them. Since you don't have to obey labor protection laws for these, you can also employ children, students, retirees etc. The wages of those people constitute a basic income.
There are some rules for tax-deductible employee to prevent the obvious attacks:
- An employee can only be deducted by at most one company at any time. (They can work for other companies, but not be deducted.)
- An employee must earn a minimum wage (depending on hours worked) to be deductible. In the example calculation [1], the monthly minimum wages were set to 1000€ for absent employees, 2000€ for part-time employees <= 20h, and 3000€ for full-time employees <= 40h. (Salaries are not taxed in this model, only sales, so gross salary = net salary.)
To boost entrepreneurship, all companies with less than 250k € revenue do not have to deduct employees; they get the lowest sales tax automatically. This means that you can earn a basic income as an absent employee for a big company, while working in your own one-man business full-time.
All in all, taxes in this model are much lower for individuals (who pay no taxes at all), and also for small and medium-sized companies. Only large enterprises pay much more taxes since there are (hopefully) no loopholes. The entire tax code fits one a single page of paper (except for the table of tax rates, if you're doing different tax rates per industry).
Also, most of the social state can be abolished. Most money transfers are more than replaced by the 1000€ income for absent employees (compared to currently ~250-300€ child benefit, up to 600€ student benefit, 800€ minimum pension, etc.). Only small groups of people (e.g. physically or mentally disabled people) would still need to be subsidized in addition to the 1000€ income. Furthermore, the creator of the model [1] also calls for a tax-based universal health insurance.
The big question mark, as always with UBI schemes, is whether cost of living would adjust upwards to eat up the basic income.
[1] The economist who proposed the model is German, so his examples are based on German salaries, cost of living, etc.
Source: http://www.bandbreitenmodell.de
For example the first $5000 of income would not be taxed.
Someone who earns 10k would pay $850 which is a 8.5% effective tax rate. Someone who earns 20k would pay $2100 which is a 10.5% effective tax rate.
+$10,000 for a broke person is entirely different from +$10,000 for a billionaire...
I strongly agree, if it could be implemented effectively. My completely uneducated guess is that it would be difficult to obtain reliable reporting of all wealth, and that income is easier to obtain information about because it involves financial transactions, often involving banks or large corporate entities.
Taxing wealth would have other advantages. For example, a wealthy person could predict their tax liability years in advance and integrate that into financial planning. Also, I think it might avoid the claimed disincentive of high income tax rates for wealthy people: Your incentive to earn is undiminished because you'll keep 90% of the money.
In the U.S., as far as I know, there is around $85 trillion in wealth and total government budgets are around $4 trillion. On that basis, the average wealth tax rate would be under 5% per year.
To be clear, there may be additional policies associated with a flat tax that may make a lot of sense. I'm talking purely about the "flat percentage" bit.
The only advantage it provides is a slightly less complicated calculation. But it simplifies a calculation that can be represented in a few lines of code and a single excel formula. As a trade off, it completely ignores the idea that the marginal value of money changes depending on the base. If you earn $50k another $10k has a lot more marginal value than if you're earning $500k.
It sounds good but it's terrible policy.
Is a flat amount unjust or just impractical? I'm not proposing we go to flat-amount tax. I'm just considering one question and nothing else: what would be just?
A flat amount seems more just to me. Is tax not to pay for services rendered? Did a millionaire really use ten times the government services that a middle-class person did? Or take a milder example. Jim is a computer programmer, making $100,000 a year; Joe is a carpenter, making $50,000 a year. Jim pays twice as many dollars in taxes as Joe. Does Jim really use twice the government resources that Joe does?
There will be some people who can't pay any tax, no matter how small, because they're out of a job or whatever. Sure, the government can decide to forgive the debt based on certain circumstances. But that's different than saying you never owed it.
Is a variable tax expedient? Yes. Could we afford to run even a sliver of our current government with a fixed tax? No, but before the Civil War the United States had no federal income tax at all.
Again, I'm not advocating it, just trying to understand.
A millionaire almost definitely used way more government services than a middle-class person. Rich people become rich because of many things, but one large part of that is the government and infrastructural services provided for all people that gave them the money in the first place. A government is not a company with services rendered.
Adam Smith said "To ensure its wealth, the government would regulate trade and maintain a strong government control over the economy"
They provide services to level the playing field and keep companies and individuals from growing out of control.
Thank you for responding.
Can you give some examples? I'm having a hard time picturing it. And is it not at least partly paid for by (1) sales tax, (2) corporate tax, (3) the jobs and products they brought about?
And the milder example seems easier to think about, someone making $100,000 versus another making $50,000.
> A government is not a company with services rendered
Can you please go into this a bit more?
* If we want a truly flat tax, everyone would pay the exact same amount. In the U.S., that would be roughly $14,000 from each adult to cover all funding. Obviously, that's absurd.
* Or we could use the 'flat tax' (or 'equal rate') described above, where everyone pays the same rate. In the U.S., that would be very roughly a 17% tax on all income, corporate or individual.
But I don't think the 'equal rate' tax above is really equal. If you make $10,000 in a year, $1,700 is a much larger blow than $1.7 million is if you make $10 million.
* What is fair, IMHO, is equal sacrifice. It's harder to quantify, but the taxes paid by people making $10 million, or $100,000 or $10,000 should cause roughly equivalent pain. It depends on the individual's situation and we'd never do it perfectly, but maybe there is an economic theory of utility or quality of life that could be used as a proxy; maybe we should subtract necessities and calculate it based on discretionary income.