Progressive taxation has the exact opposite function to what you're suggesting. It's a mechanism designed to reduce economic inequality and the poverty among the low income workers.
Your comment sounds like a rationalization from a middle/upper income person.
> it is not uncommon to pay over 40% of tax
That figure is misleading, because it includes a set of expenses like social security, health insurance, government pension plans etc. Corporations don't pay that and that's why the difference may seems so big.
But I too am quite unhappy with the way the whole taxation system is constructed. But I would go in the opposite direction to the one you described. More in the way to progressive taxation, even negative taxation for the very low income people, basic income.
I would also work a bit towards making corporation pay more for all their externalities.
Income inequality. Totally different thing; really wealthy people can play all sorts of games with income, so it’s not relevant to them. And that’s the way they like this debate framed: ignore their enormous piles of wealth and instead focus on the earnings distribution of ordinary people.
If anything, it just stops you getting anywhere near to joining their ranks on an honest wage.
Wealthy people do not take out mortgages. They borrow cash against their existing wealth. They then buy things with that. Then pay back against the loan. Writing it off too (as per tax law). The 'rich' have sold everyone a bill of goods how they are redoing the tax system for 'the people'. When the reality is they are writing a bunch more exemptions for themselves.
You can do the same thing. Many people when they figure it out 'level up'.
Home equity loans are predominantly used by middle income households [0].
The rich can borrow against securities at the call money rate, currently 2% [1]. Much cheaper than borrowing against real estate [2]. The less rich swap it to a fixed rate for added security; the richer take the rate risk. (They likely have natural hedges.) The super rich seek to borrow at or close to the SOFR [3], typically having Treasuries or similar structured products for the purpose. (If they have a business with float, that could be even cheaper than SOFR.)
[0] http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.574...
[1] https://www.bankrate.com/rates/interest-rates/call-money.asp...
This must get fixed or we all screwed. We are at the end of this system. this system is designed to help the rich, the wealthy, not the man or woman working while in middle class... we are getting screwed.
If anything, you want to replace all consumption taxes with a flat income tax (always 40% for example) combined with a flat deduction (first $40k are not taxed).
If you absolutely must replace income taxes, then replace them with land value taxes because it is impossible to avoid them as the owner (who may not be in the country) or as a person living in the country (because all land is taxed).
In most countries that I am aware of, the tax rate becomes essentially flat at, or relatively close to, a median income.
If you tax people on a lower income at that same rate, then that is highly punitive and is likely to put people into poverty.
It's immediately advantageous for governments to set a "progressive" lower tax rate, to avoid paying the cost of resources dealing with poverty.
Aside from this, governments are continuing to tax people up to and approaching median incomes at the highest rate that they can bear.
It's only once you get significantly above median that the tax rate doesn't continue to be punitive - for example, in terms of young people being able to access security of housing.
I'd argue these [existing tax schemes] aren't therefore progressive at all. It's just a different mechanism to provide minimal/essential support to people in poverty.
I am not advocating that low income workers pay higher taxes - in fact they should be exempt. I am saying that if you are from such family, progressive tax ensures you'll stay in your lane.
> That figure is misleading, because it includes a set of expenses like social security, health insurance, government pension plans etc. Corporations don't pay that and that's why the difference may seems so big
My number is based on what you get in your pocket from your salary (plus employer's national insurance that is most of the time hidden from the payslip) I didn't include local taxes (like council tax) and so on. Corporations are supposed to pay Corporation Tax, but they can too easily transfer profits offshore and largely avoid that in contrast to SME who mostly pay this tax.
Progressive tax ensures that person from poor background will stay poor.
How so? With progressive tax there is no point at which you make less money than if you had less income.
Your suggestion above that low income workers are exempt from taxes, is a description of a progressive tax.
I’m not really sure I understand what you’re suggesting should be done.
Alternatively, you can cut government spending, which normally means cutting services that disproportionately affects the poor.
Either way, moving from a progressive tax to a flat tax is a guaranteed net negative for the poor.
For the poorest many are paying no or little income taxes so the income is the issue not the taxes.
I'm having a hard time understanding the logic here. The government needs a certain amount of money to run [1]. If you make the tax rate flat then, in order to bring in the same amount of money, the lower incomes _must_ pay more taxes. While I'm open to an argument that this is false, I cannot come up with any way it could possibly be. As such, your argument seems to be
> When a person makes over X amount of money, a progressive tax makes it hard for them to save any of that money over X because the amount they make over X is taxed higher. As such, we should tax earnings below X higher, so there's less of a jump.
And that ^ argument makes no sense to me.
[1] This is arguable, but it's fair to say that the amount the government needs is orthogonal to whether taxes are progressive or not.
Decades and decades ago, corporations paid most of the tax. People paid very little.
Then things shifted. Instead of taxing corporations, people were taxed. Said people, with less money in their pocket, required raises. And so, over time, tax shifted from corporate to personal, but with people in the end taking home approximately as much as they had before.
For example, you have $60k pretax, $50k take home. Tax rate goes up. You have less, demand a raise. You now make $65k pretax, yet have $50k take home.
Of course, the numbers are merely there for example.
Why all of this? Why a reduction on corporate taxes?
Well, because now corporations can exist anywhere on the planet. If you tax a corporation too high, it can move, and you have nothing to tax. It used to be that this thing called 'tariffs' and 'duties' were an equalizing factor.
If a car manufacturer moved off short to save corporate tax, why then you'd add import tariffs. The point being, the tariff was there to replace the lost corporate tax.
Of course, tariffs are 'bad', and the goal of international trade now, seems to be to lift the third world out of poverty. Which is a laudable goal, however, with no import taxes on many things, and with corporations able to move at whim?
You must keep corporate tax low, or you lose out to competing regions. This is doubly troublesome in a new economy, in which many goods are entirely virtual, and fly across borders on the Internet.
Thus, taxes remain at the personal level -- for people cannot easily move.
Right or wrong? Well, you have to get tax somewhere. And under the current model, it is hard to get it from corporations, squeeze too much, and they're gone. And this model is enabled by most 1st world governments world wide, which have decided that import tax, tariffs, are a bad thing.
The only alternative to more corporate tax, and less personal tax, is to re-enact import taxes, duty, that sort of thing. Else, how do you prevent corporations from moving?
Of course, it's not entirely as simple as all of this, but nothing at a 10000 foot view is. It's just an overview.
The downside of all of this, is that workers in regions with abysmal workers rights, win. No health care? No paid holidays? No sick leave? Work 6 or 7 days a week, 12 hour days?
Yay! Your region gets more jobs (China), because your workers cost less.
Government doesn't tax corporations OR workers much? Well, then the worker's wages are even cheaper. The Government can't afford schools, police, etc, etc, but.. yay! You now took jobs from regions which have these things.
Which is what 'fair trade', and 'child labour' campaigns work against, but of course have limited success sadly.
Point is, I really think tariffs and a reduction in free trade, is the only way to prevent a race to the bottom.
People wonder why wages have continuously slipped in the US for the average Joe? Well, how can you compete with places that have workers working in such conditions. Who have abysmal human rights? Have no schools, or infrastructure.
Of course products are cheaper! And thus, with no tariffs, you lose in the end.
Regarding corporations paying most of the tax, according to the data at FRED (b. 1947) there has never been a point at which corporate tax receipts have exceeded individual income tax receipts: https://fred.stlouisfed.org/graph/?g=CTxn
Regarding people paying very little, all taxes (the main federal types are income, payroll, corporate, excise, and "other") are ultimately paid by people: customers, employees, shareholders, etc.
I would like to see an across the board lowering of the corporate tax rate, remove the capital gains exception counting all income as income, and making up any losses through a VAT. This would go a long way to decreasing the ability to gain the current system.
Whether this is good or bad is a matter of perspective. Some people are all for lower government spending (sometimes for justifiable reasons) and labour in the lower tax jurisdictions may benefit. What doesn't change is the balance of power: the wealthy will virtually always benefit it. The people at the bottom have very little autonomy since they have to roll with the punches to simply survive.
How can that possibly be? All corporations cannot just move elsewhere. There is not infinite space or talent or customers in this magical 'elsewhere' that everyone fears the corporations will move to. There are simply not enough trained people while, on the other hand, there are people right here right now currently working the very job in question at these corporations. Sure, out of 1000 companies, maybe 10 would find enough skilled workers to fully staff an office in Germany or Singapore or Australia, but the other ones will have just shot themselves in the foot and they know it. That's why they currently pay the premium to have an American office and not one in Bangladesh today, because if cost was end all be all these companies would have left for Bangladesh in the 1980s. Twitter would be a Bangladeshi company. We would be posting on news.ycombinator.bd right now. It's not cost, it's talent. It's also access to the American market of 400 million people at a higher standard of living than the median person on Earth. If we are worried Ford is going to take their manufacturing jobs to Bangladesh and make us buy Bangladeshi Fords, we could just sanction these industries such that the only legal Ford is an American one, like how we make Honda assemble Civics domestically. We already do this with domestic auto markets to an extent, having certain regulations means certain companies do not bother selling cars here, and vis versa, despite the car being an in demand product world wide.
For example, wages moving to countries with less worker protections. Couldn't the same argument advocate for lowering worker protections in the US, so that the jobs don't move to China? Which many of the jobs have done anyway, despite low corporate taxes?
Tax rate changes are well known, but here's an example. Click on 'max' for a decades long look.
https://tradingeconomics.com/canada/corporate-tax-rate
In terms of 'real world' wages not improving, that's a somewhat arbitrary term. If you mean 'pre-tax', wages HAVE improved over time pre-tax. We're talking over 50+ years here.
'post-tax', they did improve, but that was before the great exodus of manufacturing overseas. Since that time, since 'free trade' was a 'good thing', they have fallen steadily.
There is a savings glut and free trade definitively did contribute to it but it's not the only factor. There are dozens of other factors that play a role as well.
Here is how the loop works. China buys dollars with yuan to maintain a certain rate. China ends up with excess dollars. The dollar gets stronger and people stop buying from USA. The Yuan gets weaker and people buy more from China. China buys US treasury bonds with the USD, which is equivalent to saying that the US government can manage the money better than China (China is probably saving for pensions). The only way the US government can access the money is by issuing debt. If the US government doesn't issue debt then there are excess savings. Savings are deferred consumption and since consumption is paying the wage of a worker it is also deferred employment. If the US government refuses to spend the money then you get unemployment. The truth is that this isn't where it ends. If the US government does issue debt, then it can invest it into infrastructure, education, housing and so on. The US ends up both with infrastructure and low unemployment. It could be worse, Americans would otherwise have to spend their days working in factories and there wouldn't be any time left to build infrastructure.
No issues with product across the border.
So even though many Canadians are in favour of a higher corporate tax rate, it would literally be deadly. We must compete, we must race to the bottom, else corporations will move South.
Facetciousness aside, the Canadian experience is not comparable to the US experience, which is the subject of the article.
I actually disagree. The issue isn't the tax rate, the issue is the arms races we have embedded all over our economy. Take housing, for example. No matter what you put as your tax rate the people in the region are going to compete for the limited amount of housing stock. The same is true for premier universities or top medical care. These arms races in our economies are eating up all the real productivity gains we've made in physical goods. If you compare the cost of a small home across time in something physical like eggs the cost has absolutely sky rocketed and it has nothing to do with tax. There are certain sectors of the economy that the market can't produce more of efficiently, like housing.
It gets worse when you think about how few people technology companies really employ when compared to more traditional companies (Alphabet employs 130k, Walmart 2.2 million). They have annual profits of 40billion and ~4billion (2019) respectively. It’s bonkers that employing people is a good enough reason to warrant not paying tax.
Also to note, the US (now) has somewhat competitive corporate tax rates compared to its peer countries. However, most countries have a lower (or much lower) corporate tax rate than the US has. We shouldn't be comparing corporate tax rates with personal income tax rates... we should be comparing corporate tax rates amongst similar countries.
The lack of understanding of the tax rules by folks writing these dramatic headlines is really irritating.
However, I am paying literally 40% in taxes due to how it was paid out. As someone who desperately needs this money, it’s devastating. To hear that large corps can weasel their way out of paying is extremely infuriating.
You're going to get enough tax breaks and subsidy for buying the house anyway.
You can weasel out of it as well. You need to exercise your options at least a year before acquisition. Often you can do this even if you haven't vested the options yet.
Or are you talking about withholding? Which is not accurate to describe as “taxes paid”. Also, if including state tax, then it might be higher, but I would still be surprised if your total tax liability was over 40%.
Someone worked hard, achieved an intermediate goal that they hoped was going to move them one rung up the economic ladder only to find out that taxes took a much larger bite than they’d hoped or previously considered. So, they’re naturally discouraged to read about some big company somewhere paying a much lower overall rate while comparing it to their own.
Perhaps the real question is why the authors of these articles don’t put everything into terms more directly relatable to the people reading the article? That’s because doing so makes for less outrage-sharing of the article.
If it's paid out as some sort of investment income not subject to long-term capital gains treatment (e.g. interest, non-qualified dividends), then your top federal rate is 40.8% (37% regular, 3.8% net investment tax).
That does assume $500k of taxable income not counting the payout we're talking about here, to hit that 37% tax bracket.
If you have kids, you can hit these sorts of marginal rates at lower incomes too, because of the 5% marginal tax rate from the child credit phaseout.
I should note that money is fungible, so the fact that some of this is claimed to be "medicare" tax and some is claimed to be "income" tax is irrelevant to both the person paying the tax and the government collecting the tax. Medicare is not funded solely by the "medicare" tax in practice, so the fact that there's a separate tax is more or less an accounting oddity.
There is also state tax, which can be significant (double digits), esp for top brackets.
Consider this: Where were the last 20 major IPOs? The last 20 major acquisitions? Where were the founding teams (i.e., the ones with the most stock facing such issues.) ...I'll bet 80% or more of these were in CA. I'm only pointing this out because once you're a super-successful startup and you've gone thru all the steps for a successful liquidity event, there is the final bath of taxes :-/
40% on income from labour shows: dont get income from labour! Small percent on income from property (dividents, etc) show that that's the best place to get money from. Almost zero percent on pollution signals: go for it!
Similarly, the incidence of things like the employer half of FICA is somewhat split between the employer and the employee (in the form of lower salary for the latter). Here, as I understand it, the general consensus is that the incidence falls mostly on the employee, except in cases of binding constraints like the minimum wage.
https://www.irs.com/articles/2020-federal-tax-rates-brackets...
If you’re adding state taxes, note that the linked article is discussing federal income taxes only. Even then, including state taxes does not get you to 40% for 99% of people.
First the corporation pays 20% (soon to be 28% again) on the profits. Then it pays state income taxes on the remaining profits (0-11%). Then the investor pays capital gains or dividend taxes (10-20%). Finally they pay their state taxes (0-12%).
To the rest of your comment: interesting point. I wonder if there’s a certain tax rate where it makes sense to change how you invest. Sort of like the difference in investing in Voyager digital (VYVGF) or the Voyager token (VGX). Stock buybacks are not tax deductible but buying a cryptocurrency can be a business expense.
Last, I think the business tax rate hardly matters because so much can be written off and justified as business expenses. Just look at Amazon, Netflix and Tesla as examples. Amazon receives customer money before it has to pay suppliers. Thus, it can quickly go spend that surplus money on reinvesting into more distribution centers, better salaries, and automation until the taxable profit is $0.
Not true according to this:
https://files.taxfoundation.org/20200225094221/FF697-01.png
https://taxfoundation.org/summary-of-the-latest-federal-inco...
If state and other local taxes need to be factored in, the situation becomes much more complex and almost impossible to compare.
1: https://commonslibrary.parliament.uk/research-briefings/cbp-...
And I reckon most earning between 100k and 125k would avoid that 60% by contributing to their pension, so I don't think many are affected by it.
First: "if you work on your own small business you can pay even more" ... huh? If you own a small business, you're getting the corporate tax rate, and chances are you're not paying much of taxes anyway because your net revenues probably are $0 or close to $0. What are you talking about here?
Anyway, it's weird to state it as corporation vs worker with respect to tax rate. Those are different kinds of things. Every worker in a corporation pays personal income tax. Shareholders also pay taxes on capital gains and dividends. A corporations also pay plethora of other taxes (like payroll taxes). So let's not pretend there is no tax benefit to having corporations do business in your nation. The vast majority of corporations also have a profit margin in the range of 5%-10% - so it's not like you see crazy profits all over the place.
And given the nature of a corporation and the role it plays, increasing taxes (to say, the level of personal income taxes) to fulfil the fantasies of anti-capitalists, will have disastrous effects on the wider economy of a nation because increasing cost of doing business will be passed down to consumers and workers and possibly lead to large-scale dissolution or abandonment of your region. The vaunted nordic countries opted for a model where personal income is taxed very high, but corporate income is taxed competitively (until the Trump tax cuts, Nordic corporate tax rates were universally lower than those of US).
Finally, tax policy is an area replete with potential 'unintended consequences'. Most people (myself included and you as well - after reading your comment) don't really understand why everything is the way it is (and there are good reasons for many tax regulations), so I would be careful with advocating for restructuring the entire system - you're going to screw it up worse than you think it is now.
Corporations are allowed to bribe (sorry lobby) the government and many politicians end up on board of directors of the same corps after their marriage with the government is done away with. Do you really expect any different outcome in such conditions? In combination with this 2 major political parties ping pong I think the system is pretty much has reached an equilibrium point and nothing short of major turmoil is going to change anything.
On top of that Covid 19 pretty much played to the advantage of big corporations annihilating many small businesses. Some big ones (hotel chains, aviation) got hit as well but they'll come back after a while. Small businesses however may not.