Arguably not. The progressive tax bracket system means that a bare minimum amount of money (up to the lowest threshold) is available basically tax free to cover necessities and then everything above that is effectively profit for an individual. Living in an expensive house, eating expensive foods, raising a well resourced family aren't really expenses in the sense that businesses have expenses. If they were like business expenses people would try to minimise them, whereas most people I know actually try to maximise those costs when you look at what decisions they make. I've never convinced anyone with arguments that they should move into a cheaper house to save money. In that sense, both systems are philosophically the same but people have very low necessary expenses.
Almost an aside, but taxing people only on their savings would be truly bizarre. Someone measurably adds more to the economy than they consume and they are the ones who get shafted with tax? Ethically a case could be made, but practically the incentives are so nutty I'd hope it doesn't warrant serious discussion.
Taxing corporate revenue rather than profit would cause price increases and act like a consumption tax. Certainly possible, but that is a regressive tax policy and generally frowned upon.
Taxing savings makes sense over income. Why tax someone producing, removing the tax encourages more work performed. We tax income because it is easier. We tax the estate in death because everything is collected and recorded. In Roman times they sent a tax collector who would go through the home to find valuable objects to pay taxes (tax on savings).
It is not as wierd as it sounds. It's impossible to implement in our society before death and taxing payrolls and self reported income is a lot easier.
But that is a bad goal - we don't want to optimise economic flows, we want to optimise quality of life and standards of living.
The goal in this era of plenty shouldn't tend towards everyone teetering towards bankruptcy and wage slavery so that the politicians can talk about how the GDP is 2% higher. Everyone should have a reserve of real wealth in case they fall on hard times and the bigger the reserve the better as far as I'm concerned.
In my lifetime there have been a constant stream of inflationary collapses and a noticeable lack of problems caused by deflation. That theory is very popular with governments because it justifies the creation of money on a grand scale, but it has a certain lack of evidence. We've seen communism tried more often than deflation.
Heh it's a great idea for the powers collecting that spending though ;)
It happens all the time, it's called property taxes.
Not exactly, if the government prints money, then the value of the dollar will decrease, but it the value of other assets will increase to adjust for the lower dollar value. So while printing money can be thought of as a tax on cash savings, it's not a tax on all assets (e.g., stocks, property, etc.).
Perhaps in some cases, but many companies I know have "spend it or lose it" policies wrt budgets, so often money gets spent just to justify being able to spend more next year. And I've worked with a couple small companies that tried to spend more (legitimately) to try to avoid having as much profit to pay tax on. So not every business tries to minimize cost (or not as efficiently as you might assume).
Also the reason for the formation of most of the companies mentioned in the article is liability reduction more than tax reduction.
But the fix is easy. Wealth tax and/or UBI smooths it over and then we are set. You lost your family home, poo poo, but now get a nice stepand and can also afford appartments near where you work. You'll walk or bike more, be healther including mentally and socially (not isolated among neighbors richer than you in a dust trap), and spew out less C02.
In the end countries spend a high percentage of GDP on thing people actually want. Everything after that is just deciding who pays for it.
PS: Consumption taxes also push people to vacation and retire in different countries.
Huh?
That comment suggested
> The problem is that under the current tax scheme in the US people are taxed on their total income and companies are taxed on their profits.
and
> I think if we could just get rid of the income tax somehow (like have a land tax instead) the country would be so much better off.
Replacing the income tax with a consumption tax follows directly from both of those points. As to the first, it replaces the system where companies are taxed on profits and people are taxed on revenue with a system where companies are taxed on profits and people are taxed on profits. As to the second, obviously, it gets rid of the income tax.
What were you thinking your GP comment said?
Setting aside the oddity of talking about profit of people, given constant income, you pay less consumption tax as your profit goes up.
Consumption is expenses, profit = income - expenses.
Rearranging. Consumption tax = y * expenses = y * (income - profit) where y is the consumption tax rate. So, as profits increase, expenses decrease and consumption tax goes down.
> Consumption is expenses, profit = income - expenses.
No, a person's profits are their consumption. Savings are not profits -- they don't benefit you at all.
There's a chain going like this:
Company spends money so that company receives (more) money so that person receives money so that person can spend money.
The goal of the company is to accumulate money for someone else and that's how its profits are measured. Profit is money the company loses by paying it out to its owners. (Money the company loses by paying it out to non-owners is "expenses".)
The goal of the person is to spend money on things it can actually use; for the person, money is an accounting tool, not an end goal. But we can identify profit the same way. Money that you lose by paying it out to yourself ("consumption") is your profit; savings is just money you might one day allocate to profit.
On the other hand, I don’t think it would create much tax revenue.
We only gave our government the right to institute an income tax thanks to the idiots who banned alcohol. Before that the feds relied on alcohol taxes to survive.
Play stupid games, win stupid prizes.
https://www.heinzhistorycenter.org/blog/at-the-history-cente...
Let me paraphrase Adam Gopnik's recent book, "A Thousand Small Sanities: The Moral Adventure of Liberalism": When you talk about "the capital I pull in," you're risking celebrating the driver while taking cars, roads, and gasoline for granted. [0]
See also Elizabeth Warren's famous talk in her first Senate campaign: "There is nobody in this country who got rich on their own. Nobody. You built a factory out there - good for you. But I want to be clear. You moved your goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory... Now look. You built a factory and it turned into something terrific or a great idea - God bless! Keep a hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.” [1]
And of course Barack Obama's correct statement, intentionally taken out of context by the right: "You didn't build that" (referring to the roads and bridges that businesses depend on). [2]
[0] https://www.amazon.com/Thousand-Small-Sanities-Adventure-Lib... (not an affiliate link).
[1] https://www.goodreads.com/quotes/439207-there-is-nobody-in-t... — also YouTube: https://www.youtube.com/watch?v=60fQCDqXfq0
[3] https://www.amazon.com/Economists-Hour-Prophets-Markets-Frac...
If you combine this with UBI + Single Payer + Free College -- then everyone will be able to afford the taxes they will pay on goods/services at the store/etc.
If the lowest safety net keeps just about everyone around 35-45k with medical safety, then they can probably afford 5-10k in VAT fees, and if they no longer peg benefits to companies -- people have more fluidity about where they work based on the fact they aren't going to lose their medicare for all.
This also means those who are fine not working and living on UBI ALSO drive up the rate of pay for those who DO want to work because supply/demand of workers will go down.
Google's 401(k) plan is pretty much the most generous you are allowed to give to employees. They contract out for every non-professional role and keep a sharp distinction between the "help" that cleans and cooks, and the employees that code and do business development etc.
> The proposal would only apply to companies that post at least $10 million of taxable income from business conducted in California
Eg. lets says CA said you have to pay business tax if you make more than $X in CA, would that hold up?
Consider when Steve jobs had a $1 salary but the rest was stock options. This tax would not apply in these instance, but should. Wed also find that it does apply when it shouldnt.
The biggest issue with any tax is the disproportionate impact on middle tier/s. The richest always find a way avoid it, and it doesnt target the poor.
IMO, if there was the will to build a better system there would be a better system. There's a lot of edge-cases in space travel, or medicine, but there was will to put very smart people with very powerful computers to work on both of these, and now we have rockets that land on drone ships and medications that can control HIV.
> The biggest issue with any tax is the disproportionate impact on middle tier/s.
How do other countries do it? There's countries with a healthy middle class, why isn't the US's thriving like theirs?
Someone tricked you. The US has one of the richest middle classes in the world. A CEO being paid obscenely has absolutely no impact on the middle class, it just makes a nice boogeyman for politicians.
Except that envy is part of the human condition, and arguably, a key component of human progress. Left unchecked, though, envy can lead to social instability. See, e.g., Kahneman and Tversky's work about how people are willing to incur harm to themselves to punish what they perceive as unfairness (sorry, no time to get the cite). So arranging our societal structures to keep envy in check might be necessary, even if it means giving some high earners a haircut on their income.
Of course, by this metric the successful countries are all in Africa. It will be an interesting future.
When the English and the Germans came to North America and replaced the population there, was that a success for North America? If so, is it the kind of success you'd like to have someone else give to you?
The system in each country is very complex and it's hard to tell which parts make it work better and which parts make it worse than another. The effects are all related.
First of all, the middle class is not well defined in many of the popular articles. There can also be a significant difference between middle class defined by income vs. by self-identification. See Figure 1.1 in [oecd]. I'd start with the premise that the US is an outlier in many areas - tax system, health care, pensions, education... All of which dramatically changes how the middle class is able to structure its finances.
My guess is that many of the US citizens have higher disposable funds in absolute value than Europeans but it helps them mostly in international travel and when buying easily transportable goods. Not as much in day-to-day living.
I'll try to compare with my country (Central Europe, laws similar to Germany's but with slightly worse execution). There's a healthy middle class but according to studies, it's shrinking. It seems middle class is shrinking worldwide. Even the [oecd] study I link is named "Under Pressure: The Squeezed Middle Class". I think this feeling also led to the rise of populist governments in many of the European countries.
I'll give some facts first, then try to interpret them:
- Effective tax rate at ~50 - 60 % for employees, ~30 % for IT freelancers. I'm including mandatory social and health insurance.
- Median wage: $15,500/year, typical IT wage around me: $30 - $60,000/year.
- Supermarket cashier earns 85 % of median wage, public bus driver at around the median.
- Served restaurant lunch (just meal) costs ~$7, dinner ~$10.
- Appartments cost (capital city) at around $300/sq ft
- Most (78 % [wiki]) of people own their housing (vs. 65 % in USA).
- Mortgage rates are at 2.5 % APR, some going as low as 2 % APR (10 years fixed), inflation at similar levels (last year around 2.8 %).
- I know personally just two people who went to private universities (one because he liked the school, the other one because it was easier) and no one who went to private primary or high school. The public schools are generally free.
- My family's out of pocket medical expenses amounted to $ 500 last year, mostly over-the-counter medication for our two kids (common cold, cough, supplements, vaccinations...).
- In hospital, you can pay around ~$10/night for the privilege of a private room but there's usually a shortage of them. There wasn't a shortage 10 years ago. People just weren't used to paying in hospitals.
- The medical services are free. There was a HUGE political fight around paying $4 flat for emergency (out of working hours) doctor visits.
- Fuel is taxed at 30 % extra to VAT, there are similar extra taxes for tobacco and alcohol.
- When you buy a real estate, you're immediately taxed 4 % of the value.
- Only 20 % of people use credit cards. Most of the credit is mortgages (which were mostly profitable due to rising prices so far) or car leasing. Outside of these bigger tickets, most of the credit seekers are low income.
I feel I live in a safe environment, the public transport is well functioning and clean (daily user). You can screw up, not save for some time, get ill and you're still likely to recover financially even if you work for a median wage. You may not be able to buy housing if your parents can't help you.
But in general, I think the ability to experiment a bit and a general feel of stability allows for much more effective negotiations with employers, even for comparatively lower income people, driving minimal wages down. On the other hand, because so big share of the money goes through the government, there are many inefficiencies.
If I moved for example to the US, I might end up in higher percentile of earners and most probably I'd have more money to spend on international travel and electronics. On the other hand there are the costs of the move (family away, frequent travel across ocean) and it would be partly paid off by worse public services and higher risks if unemployed/ill.
[oecd]: https://www.oecd-ilibrary.org/sites/689afed1-en/1/2/1/index....
[wiki]: https://en.wikipedia.org/wiki/List_of_countries_by_home_owne...
the rich can afford the accountants that can minimize their "income".
the low income should theoretically have fair low tax rates.
You're left with the middle ground where people earn enough to pay significant taxes, but not enough to afford gratuitous tax accountants.
Not helped by lobbying determined to make taxes intentionally difficult in the US.
But isn't the real issue that 1 person is making a thousand times what everyone else makes? And wouldn't it be truly absurd to expect those 99 to pay more instead of the 1%?
If that 1 person was producing all the food for the other 99, I wouldn't find that to be a problem at all.
Things grow exponentially fast as you reach the top. If you look at the Forbes 100, Jeff Bezos is worth about 2x number 5, 10x number 40. [1]
The net worth of the top 1% is 10 million. That's 10,000x less than Jeff Bezos. The percentile/wealth graph is an insane hockey stick.
I don't doubt the 1% pay a big chunk of the pie. I do wonder if it's an amount proportional to their wealth, but let's leave the millionaires aside. I wonder what part of that 37% the billionaires are paying, and if _that_ is a fair amount.
[1]: https://www.forbes.com/forbes-400/#7795b4417e2f [2]: https://www.forbes.com/sites/jackkelly/2019/10/22/the-number...
Federal income tax is based on income, not wealth. It's entirely possible (and happens all the time) that wealthy people have a bad year with their investments and lose money. They don't pay income taxes on losses.
You don't need to make much more than me for that to start become profitable - accountants, trust costs, etc eat up a relatively fixed amount of money. But once you exceed that cost then it's time to start shifting money around.
Not that this doesn't reduce the tax you pay on your income. it directly reduces your "income" itself.
They should be paying a higher amount based on the amount of money they earned.
We could debate if they should be making so much %wise of total income.
It varies year by year.
not only is it true, but most people don't pay income tax or pay very little.
the bottom 50% accounted for a measly 3% of all tax.
this is the same in the UK and other countries.
right now we use the top 1% as scapegoats for the borderline useless politicians.
Of course they do, that is a symptom of the problem. Take an absolute extreme of society: one person has all the wealth, and everyone else has nothing. Obviously, that one person will pay 100% of the taxes, and everyone else will pay 0%.
Today, we see a similar but less extreme situation. It's not intuitive at first glance, but think about it for a few seconds and it makes sense: if you want a more balanced distribution of tax burden across society, you need a more balanced distribution of wealth across society.
Accordingly, if you want the bottom 50% to pay more, you actually have to tax the rich more to reach a more equal distribution of wealth.
Then you don't have a society. You have one person who claims they have "money" while everyone else moves on with their lives.
Only if the only taxes are wealth taxes. You're in a discussion about income taxes.
wealth = income - consumption
In the U.S., we tax all three: general income tax, consumption tax (e.g., sales tax), and wealth tax (e.g., property tax). Taxing any one has an effect on the other, and a discussion about one is relevant to all others.
No, income - consumption is net increase in wealth. Those are all flows. Wealth is a stock. Wealth taxes are periodic taxes on the value of the stock, income taxes are taxes on the flow.
You're introducing periodicity, which I did not have in my simple model. Maybe a more complete model would be:
Wealth_N = Sum {i=1 to N} ((Income_i - Consumption_i)*CapitalGrowth^(N-i))
Whether or not this can be gamed isn't the issue here. I think it's good to increase pressure on companies to treat their employees fairly.
Our company specializes in automating low wage clerical work.
I think we put over a thousand people out of work this year through our various engagements.
This is virtue signaling and not the most effective, but it does create a real incentive and being forced to hire less and therefore automate more low wage work would be a good thing.
Basically, this policy sets us up nicely for UBI.
If you want to redistribute wealth, do it the honest way that doesn't distort markets. Take it from rich people and give it to poor people!