Yeah, it would "fix" this situation by just having them pay _less_ tax without needing a loophole. The percentage of income/wealth that someone spends decreases as wealth increases, so in other words the poor pay proportionally more under your tax scheme.
A system that only taxes spending fundamentally has problems in that the richer people can afford to save and invest.
The initial, flawed response to this issue would be to construct some "massive political and logistical complexity" in order to track everyone's income and spending and family situation and lots of other stuff too and calculate their VAT refunds based on some formula. The much simpler solution is to just give everyone the same amount of money. Poor people will spend some portion of it on sales taxes, and they'll use the rest for other purposes of their choosing. Slightly richer people will spend all of the UBI on sales taxes but will come out even. Slightly richer people will be able to offset some portion of their sales taxes. Really rich people won't even notice they got a UBI.
Perhaps you really meant that "massive political and logistical complexity" is required to get anything through the legislative process? After all, the more complicated it gets, the more places lobbyists can hide loot for their employers.
TL;DR: my fear with UBI is that unscrupulous people will do unfair things like significantly raise rent to eat into other people's free money thus leaving the poor in the same spot, more or less.
I don't claim to know anything about your town, but I've lived lots of places and in general, in order to really fuck people over the bastards first have to limit their freedom somehow. Are there only certain parts of town in which the poor are allowed to live? Has public transportation been limited in arbitrary ways? Do zoning regs or HOAs enforce impractical restrictions on housing? Would it be OK if your neighbor parked a mobile home and camper behind her house for her recently-divorced sister-in-law plus five kids? What if her nephew and his girlfriend also moved out back?
> A system that only taxes spending fundamentally has problems in that the richer people can afford to save and invest.
That is an existing problem inherent to any tax system. It's just saying "Rich people can afford to not spend all of their money". I don't see how that's fundamental to taxing only spending.
Lets say apples have a -5% tax rate, and cost $1. Every time I buy an apple from the store, I pay $0.95 (the government pays the rest, which is a problem in and of itself). I can sell that apple for $1, and the government basically just paid me $0.05 for selling an apple.
The problem with the government paying that $0.05 is that sales tax is assessed at time of purchase, but the government isn't there to pay their part. The grocery store basically has an IOU from the government. 5% may be higher than the grocery store's margins, which means the customer payment is actually less than the good is worth, so the grocery store's ledger actually goes down for that sale until the government pays back their part.
And then you have to deal with fraud. Nobody wants to overreport their sales tax, it costs them money. If you can make money off sales tax, people will filing fraudulent tax reports, and I really don't want the IRS having to track how many apples the grocery store actually sold. I'm sure money launderers would also find a way to use it to buffer their costs.
Subsidies probably still have fraud, but it's a smaller number of entities to work with. We can also budget for it because we determine the amount. I can give a budget to the subsidy, but I can't tell people to only buy 10,000 apples next year.
There are similar issues in agriculture subsidies and price regulation. E.g. High fructose corn syrup is probably as popular as it is because corn has been subsidized and cane sugar has a regulated (high) price. It's kind of like an inefficient arbitrage between physical goods to avoid taxes.
If you taxed only assets it wouldn't be a problem. Mo money mo taxes.
Whether you want to tax predominantly assets or spending usually reflects which side of the capital divide you see yourself identifying with - predominantly a recipient of unearned income (e.g. landlord/FIRE) or a payer (e.g. renter).
In this proposal, sales tax is the only tax. You can't run a government without money.
I run a small business, I do my monthly PAYE in a simple spreads sheet - one line, type in the gross income out comes the numbers to include in the online filing web page including PAYE, and 401K equivalent. Doing the same in California was a nightmare.
We have no need for TurboTax or it's equivalent
Ok, I'll share mine: the only tax is on pollution and/or scare resource usage.
It's weird that we tax anything that's considered "good" in my opinion. Taxing housing, income from labour, consumption -- who came up with these shit ideas? Tax only, ONLY, what is considered bad (or should be reduced to a minimum), mainly: pollution. And the market will organize itself accordingly; optimize for all of us to survive a little longer on this planet (instead of exploiting it ASAP).
Perhaps the main tax of the whole humanity should be a carbon tax, at least in the 21th century.
Also, quality of living is determined by income, not wealth. Fresh retirees are generally wealthier than other age-groups because they've saved for retirement. But that doesn't mean they consume more. Also, consider the citizens of the Netherlands. They enjoy a comfortable existence while servicing an enormous amount of debt. If wealth were the primary determinant of quality of life, you'd think the Netherlands were as as destitute as Somalia.
The American capital, legal, and tax structure collude to reduce wages, whereas the Dutch system incentivises responsible 'market based solutions'
The only people who want to live with a somali gov are gop
Another way of thinking about this: A wealth tax is like inflation, except assets are also devalued alongside your savings. Which means the wisest strategy is to consume now, save nothing, invest nothing.
Or startups - is your loss making one a 0 or a $1bn? You could have work arounds for tax but it complicates things.
(Genuine question) how would one determine the value of something for taxation purposes if there's no market involved?
What's the value of a painting? You could use the price I bought it for, but what if we just swap paintings instead? You know, I give you this fancy painting, you give me some Goodwill shit and you pay me a $100k "finders fee".
What's a yacht worth? What are super fancy houses worth? One of Mike Tyson's old mansions is still abandoned, so I assume it was worth nothing since they couldn't sell it.
Properly valuing things is hard. Wealth taxes are also regressive, in a way, because poor people are much less likely to have access to financial instruments that will return greater than the wealth tax rate. The poor and the middle class are far more likely to have their money in functional investments (homes, cars, etc) than they are to have them in something that generates profit.
So you'd still have to just not assess the tax on assets under the value of a reasonable home and car, at which point we're basically just back to what we have now, which is carving out a loophole for the poor.
1. own the largest market 2. Own the world reserve currency 3. Have a means of charging exit taxes
I used to think this because it's often said, but learned it's not true. This sums it up:
The top 50 percent of all taxpayers paid 97 percent of all individual income taxes, while the bottom 50 percent paid the remaining 3 percent.
The top 1 percent paid a greater share of individual income taxes (38.5 percent) than the bottom 90 percent combined (29.9 percent).
The top 1 percent of taxpayers paid a 26.8 percent average individual income tax rate, which is more than six times higher than taxpayers in the bottom 50 percent (4.0 percent).
https://taxfoundation.org/summary-of-the-latest-federal-inco...
> The big picture: The very richest Americans pay much less tax, as a proportion of their total net worth, than the rest of us.
> By the numbers: The bottom 99% of Americans pay about 7.2% of their net worth every year in taxes, per Warren. The top 0.1%, by contrast, pay about 3.2%.
Source: Section 3 here: https://www.axios.com/newsletters/axios-capital-d213524e-b2f...
Let's say you and I start off with zero wealth, but we both graduate with a good degree, both get high-paying jobs and both make the same amount of money.
We also pay the same amount of taxes - which sounds fair, right?
Lets say we both make 150K a year, but I spend it all on my living expenses/fun while you are able to live on 50K and save 100K every year.
In 10 years, you will have over a million dollars in savings/investments while I lets say managed to save 10K.
We still make the same salary and pay the same tax but our wealth is grossly unequal. I pay 100X tax-per-wealth than you do. That sounds horrible but in the above example is totally reasonable.
Obviously the Warren Buffet example is a bit different than that but - he pays a ton of absolute $$$s compared to you, me, and anyone else, why is his total wealth an absolute necessity to look at?
In reality, factors outside of someone's control (ex: parent's education and wealth) are greater predictors of their wealth than _any_ decisions they make. I am ok with allowing some people who make irresponsible life choices to get away with lower taxes if it makes the system as a whole fairer.
> why is his total wealth an absolute necessity to look at?
Your claim was that the poor aren't disproportionately taxed. "Poor" is a statement about wealth, not income, and income is an inaccurate substitute for wealth.
Because money needs to move. Having it sit somewhere in a bank account is not something you want to encourage (as a government).
For example, they are often LPs that invest in VC funds to give them cash which is then given to startups to build a business.
Take another look at the last point I cite, I THINK it goes to what you're asking: the richest 1% paid 26.8% of they income in taxes. The poorest 50% paid only 4% of their income in taxes.
Let me know if your question is something different.
Firstly, AGI is post-deductions, so people who play games with their taxes show up as paying more.
Secondarily, and more importantly, income is a trash metric anyways. Poor does not mean low income, it means low wealth. In your data somebody who inherits a ton of money but has 0 income counts as "bottom 50%". Rich people have a disproportionally lower income vs wealth.
I think the biggest single thing that would simplify the tax code is removing the separate capital gains tax and just counting it all as income. There is significant complexity in the tax return to calculate everything independently and to show that your capital gains aren't really income. You could eliminate Schedule D, Form 8949 (which you have to up to 4 times), and the Capital Gains/Schedule D worksheets to figure income.
HSAs are also super painful. E.g. CA doesn't respect the tax-exempt status of HSAs, so you have to add the HSA back into your income so they can tax it. There are also a lot of bookkeeping requirements for relatively low amounts of money. In practice, they aren't very useful since the fees are high, the returns are low, and their function is redundant with insurance (i.e. paying premiums now to cover large future expenses).
In general, there are a ton of random little exemptions and extra taxes that you might qualify for and it just takes time to figure out if they apply to you. E.g. Form 8959 (Additional Medicare Tax) is a 0.9% tax for income over a certain amount. They should have just adjusted the income tax graduations in an equivalent way. Form 8960 (Net Investment Income Tax) has a similar problem. CA gives a $60 renter's credit if you make under certain amounts, which is just too insignificant to matter (e.g. 0.3% of $1500/month annualized).
That's okay during times like ~1990-2020, a time of wonderfully low dollar inflation. The justification behind the long-term capital gains rate is this: during times of high dollar inflation, taxation on capital asset values turns into an outright tax on investment.
If the dollar is inflating rapidly then an investment which simply maintains its value in real terms -- neither gaining nor losing real value -- will see its value in dollars increase and will therefore be taxed, heavily. The lower rate for capital gains tax was in recognition that not all of that gain in nominal value was real income. All of the major reductions in the long-term capital gains rate (i.e. reduction of the rate, shortening of timespan for "long term", and increase/removal of cap) occurred after highly dollar-inflationary periods (1934, 1942, 1978-1981).
Without a lower capital gains rate, during times of high dollar inflation the wealthy will shift all their money into non-fungible assets (real estate, artwork, patents, Persian rugs, domain names, antiques) which aren't fungible commodities with liquid markets and therefore can't be marked-to-market or taxed until sold. This kind of economy-wide, sudden, and simultaneous disinvestment would be a catastrophe for the economy.
Not to mention the resulting real estate boom would make the homelessness problem an order of magnitude worse in a matter of months. When your money is losing value every day, buying up every apartment in sight, jacking the rent to the moon, and evicting the tenants (so it can sit empty and maintain value without any management effort) is, unfortunately, a great strategy.
Note that the 1990's were a boom time for the US (Cold War peace dividend), and from ~2000-2020 we had a massive onlining of cheap Chinese labor providing a deflationary counterpressure to our outrageous money-printing escapades. All the cheap Chinese labor is now fully online and "Fed go Brrr" is in permanent COVID-hyperdrive, so the party will end real soon now.
I don't know, it sounds like a great opportunity for the non-super-wealthy to buy shares in productive assets at a discount. Haven't all the prudent people in the room spent the past 8 years grousing about how poor the P/E ratio of the S&P is?
Those people generally end up in prison. The few who don't are not economically significant.
Not to mention that as I get older, I expect my income tax bracket to drop. I'd rather buy productive assets cheaply now, and deal with the tax consequences, than be cut out of buying productive assets, period.
Not a bad idea per se, but regressive, as many pointed out. However, in conjunction with a UBI it might make sense, and be progressive.
I agree with you that VAT would be cool to have as the sole tax, though.
I’m sure it’s cool if you’re worth a few millions or above. VATs are highly regressive taxes, though they are also consumption disincentives (essentially luxury taxes on a number of non-luxury, which is why essentials like food tend to be low-rated).
The tax code is being used as a tool to funnel money through industries and as kickbacks to bureaucrats. A non-communist government can't force the population to do something (invest in this, build this, do that), but they can encourage/discourage it through taxes.
The tax code is not getting simpler any sooner.
And just forcing the bureaucracy into the businesses collecting a sales tax doesn’t reduce the burden, it just puts it out of sight for consumers.
Here's my dream for a simpler tax code: The only tax is a Sales tax/VAT/GST.
Pros:
- Individuals never have to think about tax. It would completely eliminate tax returns. That alone is worth it's weight in gold since tax returns are such a time and money burden.
- It would close all the loopholes megacorps/wealthy individuals use to pay less tax. You cannot avoid spending money in the place where you operate.
- To add to that, if every country implemented this system we would be able to move freely between countries, spending as much time as we desired, without having to worry about tax implications. Obviously that's a much much longer term vision.
Cons:
- Won't this disproportionately tax the poor?
- Won't prices have to rise for the same tax revenue to be collected? - Yes, but now you have all this leftover money that used to just go to income taxes which you can use. Plus prices might not rise as much as you think now that the tax loopholes used by megacorps are closed.Look, I know it's pretty radical, but I think this is the only sensible taxation in the future.