Just to be clear here though, the Chinese do pay income tax. They just don't call it income tax.

The government concocted a scheme that is a bit involved, and complicated, and clever. There are actually a lot of different sorts of taxes VAT, sales, etc etc etc. Some optional, some not.

In terms we'd be familiar with, the "income tax" over there is charged on the business side. Imagine that you didn't have to pay income tax, but your employer cut your salary 30% because he had to pay a "social harmonization insurance fee" or some such nonsense for each of his employees. The employees, of course, would never see that, but it still, to my mind anyway, is effectively an "income tax".

It really is rare to find a developed nation where people get away from income taxes. Even when you do appear to find such a nation, if you examine the system closely enough, you can usually find how they're paying it.

> Imagine that you didn't have to pay income tax, but your employer cut your salary 30% because he had to pay a "social harmonization insurance fee"

You mean payroll taxes?

If payroll taxes were 100% the responsibility of the employer, and included the employee's income tax obligation. So in the US the taxes are effectively split between the employer and the employee, but in China they're basically all on the employer with a trivial amount charged to the employee.

One of the gotchas if you plan on operating a business in China at all.

Economically speaking, payroll taxes are always a burden on the employee, not on the employer, even if the employer is the one writing the check.

Doesn't that depend on the relative price sensitivity of the employer vs. the employee - namely, the elasticity of labor demand / supply?

That is correct, its just that employees are a lot less inelastic than employers, for multiple practical reasons.

China has those also. They are quite separate (with employee and employer portions, just like in the USA) from what parent was talking about.

You actually get a refund on some of it (retirement) when you leave China.

This would be such a pain in the ass when it came to filling out a USA foreign tax credit form. Thankfully, Chinese income taxes I paid were high enough to negate my US tax obligation.

And yes, VAT is super high on many things, shopping in China is pretty expensive.

That is not an income tax, it’s an employer tax. I thought that pretty much everywhere you have the distinction between employer’s taxes and employee’s taxes, is not that the case in US?

An episode of Planet Money[0] mentioned that some economists believe income tax is not ideal. Their thinking was that taxation usually discourages the action that is being taxed. Work shouldn't be discouraged. The proposed solution in the episode was to replace the income tax with a carbon tax. Encouraging people to cut down on their carbon footprint with taxes that wouldn't be more than their current income tax.

[0] https://www.npr.org/sections/money/2018/07/18/630267782/epis...

A carbon tax on people? How would that work without massively invading people's privacy, it seems like it would require tracking everything people do and consume?

(I don't have time right now to listen to the episode unfortunately).

You charge a carbon tax at production of the raw feedstocks that contain the carbon (coal, oil and gas), not by tracking individual usage. Everyone pays the carbon tax because the price increase necessarily feeds through the whole economy of products that are made from those feedstocks.

Sounds like a consumption tax. Doesn't that end up causing a higher effective rate on lower earners, and a lower effective rate on higher earners?

Yes, which is then negated with rebates / negative income tax.

So the end result is... lower taxes all around? Where does the deficit get made up?

High income earners don’t get the credit. Similar to how there is an income cap on incentives for EVs in California

But high income earners still benefit from a lower effective rate from the change.

If low income earners pay a higher effective rate than they would under income taxation, which is to be neutralised by credits, and higher income earners pay a lower effective rate, who makes up the deficit?

Yes, it's a consumption tax on something you want to reduce the consumption of, not across the board on all products. Most proposals include an offset (e.g., basic income guarantee or negative income tax rate) for low income earners.

If done on a world-scale this would work great.

It turns out if just one country tries do do that, it's pretty much impossible to correctly tax items that go in or out of the country border though. An error in either direction (too much or too little tax) will severely harm local businesses and the environment.

Mostly just tax their cars and consumer products.

Car taxes here in Norway are already sky high for polluting cars, often more than 100% of the non-taxed car value. Fuel prices are around $7.5 USD per gallon.

Yet, car taxes amounts to only 44 billion NOK in income for the state per year (it was 70 billion NOK in 2007, before electric cars became popular here) [1]. The income/fortune tax on the other hand amounts to 248 billion NOK in income to the state per year [2].

Car taxes are nowhere near sufficient, and will never be. If taxes were increased to even more per polluting car, it would just drive even faster adoption to electric cars and a even more rapid car tax income decline. Replacing the income tax with a personal car carbon tax can't work.

[1] https://www.aftenposten.no/okonomi/i/Vy9xV/Bilavgiftene-har-...

[2] https://www.regjeringen.no/contentassets/62bcdd722d344cd0ac6...

Gas, road and car taxes are regressive as well. They disproportionately impact poor people. People who need a car in order to live in cheaper suburbs outside of town. Now maybe a luxury car tax is ok..

> If taxes were increased to even more per polluting car, it would just drive even faster adoption to electric cars and a even more rapid car tax income decline.

Sounds like a good way to lose tax revenue.

Exactly my point.

However, I read the transcript of the podcast now, and it turns out it doesn't actually talk about replacing the income tax with a carbon tax, but rather reducing the income tax and offsetting the reduction with an increase of carbon taxes.

That on the other hand is a great idea, it's much like we're doing in Norway already.

One aspect of a carbon tax (or the tax discussed in the podcast) is a steady tax increase. I guess the intended function is to have the tax revenue stay the same even with declining carbon use. Hopefully carbon tax revenue would go to zero, but I'm sure there would be other things to tax when that happens.

Initially when the parent comment mentioned the income tax, I didn't remember that it would be used to offset a carbon tax. Their point about discouraging work made sense and was the thing I remembered.

Also take into account the state spent 5% of GDP in the 1800's. That would barely pay for medicare today.

Income taxes are, however, pretty progressive, relatively easy to levvy and practical. They are not particularly bad taxes. Sales taxes, or VAT are worse in my opinion.

> People forget that we didn't have income tax in the US for much of our history and a few states still have no income tax.

Do you mean federal or state income tax? I am in one of the states with no tax paid to the state (Texas) but rest assured we still pay federal income tax as well as higher property and sales tax to make up for it.

He almost certainly meant a few states do not collect state income tax.

I'm in a state with no state income tax as well (Washington). I've lived in states with income tax before. As a single individual with high income that rents their primary residency I greatly benefit from living in places without income tax compared to places with even modest income taxes.

All sovereign governments which have their own fiat currency finance themselves by simply spending money into existence, including the USA. The purpose of taxes isn't to finance directly but to provide a demand for the money (I need dollars because I have to pay taxes) but also discourage/encourage certain behaviors. This idea that taxes are directly used to pay for things is completely wrong (except for the case where the government doesn't have it's own money, like in the EU).

The US also didn't have a national highway system and other social services for much of its history. Interesting.

we should go back to that, the federal government is essentially cancer and money is the glucose that feeds it's constant growth.

The initial idea of small federal government with states rights was brilliant because people could vote with their feet. If you're a progressive who supports the right to abortion, legal weed, and government health care you could move to a state that supports those things and gladly pay that states higher income taxes to fund it.

In my mind that system is far superior to having the federal government shove laws down the states throats and prevents the divide between our citizens becoming so massive as we've seen over health care and taxes at the federal level.

It’s always interesting when people think the initial idea of a strong state government and weak federal government was such a great idea, without acknowledging that the US existed under that regime for some time, realized it didn’t work well, and moved on. Those who don’t study history and all that.

Technically, they did pay tax as the owners of the slaves would have been obliged in some states to pay certain fees based on outputs. (And a lot of times even on the inputs.)

No one ever evades taxes. As horrible as this may sound, that kind of included blacks.