An Explanation of Progressive Taxation

[ALiberalModerate]

I think it would probably be a good idea to provide a basic overview of how progressive taxation works. I think it's pretty obvious that some people just don't get it.

First off, let's look at the tax brackets for Single Taxpayers.

If you make $7,500 dollars a year, your tax rate is 10%.

If you make between 7,500-30,650 a year, your tax rate on that income is 15%.

If you make between 30,650-74,200 a year, your tax rate on that income is 25%.

If you make between 74,200-154,800 a year, your tax rate on that income is 28%.

If you make between 154,800-336,500 a year, your tax rate on that income is 33%.

If you make 336,500 and up, your tax rate is 35%.

Now here is where the fairness comes in,

If you make say 80,000 a year, then you pay no more in income taxes on your first 7,500 dollars a year, then someone who only earns 7,500 a year. You also pay no more on your first 30,650 a year than someone who only earns that much pays in. This is true all the way up the income ladder. The fact is, Bill Gates pays the same tax rate on his first 30k a year as his maid pays. Moreover, while his maid's entire income is subject to payroll taxes, Bill Gates only pays payroll taxes on his first 90k a year.

At this point you are probably thinking about one of those "statistics" you probably got in some chain email forwarded to you dozens of times over that said something about the top 50% paying 96% of income taxes or something like that. Well, that is more or less true. However, it is not evidence of some unfairness in the tax code, but rather it is just a result of the distribution of wealth in this country. What those propaganda emails don't tell you is that the top 10% of Americans own over 71% of the nation's wealth.

The fact is, Progressive Taxation is not perfect, hell all taxes suck, but it is by far the fairest form of taxation that we could possibly have that has the ability to raise the funds necessary to fund the obligations we have placed in the public sector. So next time you read some ideologues op-ed, or get some propaganda email forwarded to you, don't fall for the hype as it is only half the truth at best.

 

[Real Korimyr #9]

Bravo! Wish more people would demonstrate such a clear understanding of the concept.

 

[Iriemon]

I think it would probably be a good idea to provide a basic overview of how progressive taxation works. I think it's pretty obvious that some people just don't get it.

First off, let's look at the tax brackets for Single Taxpayers.

If you make $7,500 dollars a year, your tax rate is 10%.

If you make between 7,500-30,650 a year, your tax rate on that income is 15%.

If you make between 30,650-74,200 a year, your tax rate on that income is 25%.

If you make between 74,200-154,800 a year, your tax rate on that income is 28%.

If you make between 154,800-336,500 a year, your tax rate on that income is 33%.

If you make 336,500 and up, your tax rate is 35%.

Now here is where the fairness comes in,

If you make say 80,000 a year, then you pay no more in income taxes on your first 7,500 dollars a year, then someone who only earns 7,500 a year. You also pay no more on your first 30,650 a year than someone who only earns that much pays in. This is true all the way up the income ladder. The fact is, Bill Gates pays the same tax rate on his first 30k a year as his maid pays. Moreover, while his maid's entire income is subject to payroll taxes, Bill Gates only pays payroll taxes on his first 90k a year.

At this point you are probably thinking about one of those "statistics" you probably got in some chain email forwarded to you dozens of times over that said something about the top 50% paying 96% of income taxes or something like that. Well, that is more or less true. However, it is not evidence of some unfairness in the tax code, but rather it is just a result of the distribution of wealth in this country. What those propaganda emails don't tell you is that the top 10% of Americans own over 71% of the nation's wealth.

The fact is, Progressive Taxation is not perfect, hell all taxes suck, but it is by far the fairest form of taxation that we could possibly have that has the ability to raise the funds necessary to fund the obligations we have placed in the public sector. So next time you read some ideologues op-ed, or get some propaganda email forwarded to you, don't fall for the hype as it is only half the truth at best.

If you figure all social security taxes are effectively paid for by the employee, you see that just a little bit above middle income levels the rates are almost flat.

For example, take a guy making $50,000. He pays income taxes of $9,057.50 and social security taxes of $6300 (.126 * 50,000) for a total of $15,357.50. His effective tax rate is 30.72%.

The guy making the cutoff point of $74,200 pays $15,107.50 in income taxes, $9349.20 in SS taxes for a total of $24,456.70. His effective tax rate is 32.96%

Now the guy making $336,550.00. His income taxes are $97,653.00. He pays the maximum social security tax of $12,096.00 ($96,000*.126). His total tax is $109,749.00, with an effective tax rate of 32.61%.

The guy making $1 million pays $329,860.50 in income tax, $12,096.00 in SS tax, for a total tax of $341,956.50, which represents 34.20%.

Taking into consideration SS, the effective tax rate once you get a little above $50,000 in income is essentially flat.

Of course there are other tax factors that complicate this simplistic scenario, such as write offs and deductions, and income based on investment returns (ie income of those with lots of assets) has a maximum rate of 15%.

 

[ALiberalModerate]

Of course there are other tax factors that complicate this simplistic scenario, such as write offs and deductions, and income based on investment returns (ie income of those with lots of assets) has a maximum rate of 15%.

What amazes me is how some people fall for the "Flat Tax" propaganda. For a flat tax to raise enough money to fund the Federal Governments fiscal obligations, it would have to be fairly high. Forbes puts it at 17% when he tries to sell it, but most economists say that it would have to be at least 27% or higher. Moreover, the people who promote the idea of a Flat Tax only want to tax income. Taxes on dividend and investment income would be eliminated. So while the Steve Forbes of this world would hardly be paying anything in at at all, most of us would be stuck with a huge tax increase. The reason of course would be that a Flat Tax would eliminate deductions for things like mortgage interest and childcare. To top it all off and to add insult to injury, we would still be paying in payroll taxes on income up to 90k a year. In the end it would be nothing but a windfall for guys like Forbes, and the rest of us would be saddled with the tab.

It is rather ironic that Flat Tax proponents would use Russia as an example. As if Russia is some pillar or prosperity and good governance.

 

[Real Korimyr #9]

In the end it would be nothing but a windfall for guys like Forbes, and the rest of us would be saddled with the tab.

Which is why it's guys like Forbes who keep suggesting it. The sad thing is the suckers who fall for it.

 

[Iriemon]

What amazes me is how some people fall for the "Flat Tax" propaganda. For a flat tax to raise enough money to fund the Federal Governments fiscal obligations, it would have to be fairly high. Forbes puts it at 17% when he tries to sell it, but most economists say that it would have to be at least 27% or higher.

It's not that hard to estimate. Gross personal income was $10.2 trillion in 2005, http://bea.gov/bea/dn/nipaweb/SelectTable.asp?Selected=N#S2 Table 2.1. Revenues from social insurance and income taxes was $1.7 trillion. http://cbo.gov/budget/historical.pdf Table 3.

If you elimated *all* exemptions and deductions and taxed *all* income (including dividend and cap gains and SS) equally, then a 17% flat tax rate should give a equivalent level of revenue as income and social insurance taxes. If you maintained the standard deductions and exemptions, however, the rate would have to be much higher.

Of course, there was a $1/2 trillion deficit in 2005, and if you wanted to come to anything near a balanced budget add another 5%.

Moreover, the people who promote the idea of a Flat Tax only want to tax income. Taxes on dividend and investment income would be eliminated. So while the Steve Forbes of this world would hardly be paying anything in at at all, most of us would be stuck with a huge tax increase.

Gee, why would guys like Forbes want that?

The reason of course would be that a Flat Tax would eliminate deductions for things like mortgage interest and childcare. To top it all off and to add insult to injury, we would still be paying in payroll taxes on income up to 90k a year.

If you are not counting social insurance taxes, then you'd only need about a 9% flat tax on income (assuming no deductions or exceptions and all income taxed equally) to replace just the income tax. Income tax revenues were $927 billion in 2005.

What it sounds like Forbes really wants is a regressive tax.

In the end it would be nothing but a windfall for guys like Forbes, and the rest of us would be saddled with the tab.

He's not very subtle about is goal of maximizing wealth for the very richest, which is why he went down in flames when he ran.

It is rather ironic that Flat Tax proponents would use Russia as an example. As if Russia is some pillar or prosperity and good governance.

I disagree with it because it overtaxes the poor viewed from ability to purchase necessities.

I'm surprised they have it in Russia. They've gone from communism to socking it to the poorest.

 

[nope]

It's a bit strange that so many people in America seem to think they pay to many taxes.

Let me tell you the income tax in Austria looks like.

0 - 10000 Euro 0%
- 25000 Euro 23%
- 51000 Euro 33,5%
51000 and more 50%

One Euro is about 1.3 USD.
But living in Austria is afaik more expensive than in the USA thus you can also read 1:1.

Compared to this the your taxes are not very high. I also think it's not bad that way because when you look at what percentage of whealth some percentage of the people have it still not enough on the upper end und too much on the lower.

The base for tax is
+all the income from whatever
- extraordinary expenses
- tax exempt amounts
- special expenses

You can write off a studying child for instance.

 

[SFLRN]

Moreover, the people who promote the idea of a Flat Tax only want to tax income. Taxes on dividend and investment income would be eliminated. So while the Steve Forbes of this world would hardly be paying anything in at at all, most of us would be stuck with a huge tax increase... In the end it would be nothing but a windfall for guys like Forbes, and the rest of us would be saddled with the tab.

First off, most people who want the flat tax want to cut government spending and lower taxes as well.
Secondly, if we are paying a true flat tax there would be no payroll tax.
Although I am more for a consumption based tax, lets look at the statements put foward. If we stop taxing dividends and sources of income beyond one's employment then we increase the incentives for Americans to save their money; they can keep more of the money they save. It can be through long-term stock market investments or through putting money into the bank. When you create an incentive to save more you will lessen the need for Social Security, because consumers will have more set aside in banks and stocks. This would then allow legislatures to begin cutting Social Security benefits; we cannot possibly fund our current system, in the long run.
Lastly, you claim this is the most just system, a positive statement. However, what you perceive as just and what someone else perceives as just may be two different concepts. So for one to say that this is the most just system requires a definition of justice otherwise it is a rather vague statement.

 

[Iriemon]

...Although I am more for a consumption based tax, lets look at the statements put foward. If we stop taxing dividends and sources of income beyond one's employment then we increase the incentives for Americans to save their money; they can keep more of the money they save.

Wait a minute, if you cut the dividend and cap gains tax for rich folks who already have investments, then you have to raise the income tax the working folk pay to make up the difference. Won't that reduce the amount of money *they* have to save?

When you create an incentive to save more you will lessen the need for Social Security, because consumers will have more set aside in banks and stocks.

How are you increasing an incentive to save for working folks when you have increased the income tax to make up the difference for the investment tax cuts?

Or do you support the Republican strategy of just borrowing it? What's another few trillion to the national debt?

This would then allow legislatures to begin cutting Social Security benefits; we cannot possibly fund our current system, in the long run.

We could pay for SS by raising taxes. But I agree it is more of a problem since SS savings have been wasted funding Republican deficits.

I do agree SS needs reform. It is inane to pay the dole to the likes of Warren Buffet aswe do.

Lastly, you claim this is the most just system, a positive statement. However, what you perceive as just and what someone else perceives as just may be two different concepts. So for one to say that this is the most just system requires a definition of justice otherwise it is a rather vague statement.

True, thought we can talk about what most folks think is just. I think most folks think that taxing the workers and not wealthy is not just.

 

[PeteEU]

Nicely explanation of progressive taxation, although at first I thought it was wrong based on your first few sentences.. would be good to put the following in

If you make between 7,500-30,650 a year, your tax rate on the first 7500 is 10% and then from 7501 to 30.650 it is 15%... just a minor technicallity, as you explain it later on

As for flat tax. Flat tax works in places like Russia because they have stormtrooper tax police that have standing orders of shoot first ask questions later. Flat tax only benifits one group of people.. the rich pure and simple.. its smoke and mirrors politics by the upper class to gain more power and riches. It will not stimulate the economy, nore will it improve the income to the goverment. It might in fact do exactly the opposite and require massive cuts on all fronts to even come near a balanced budget. And the more you cut from the goverment, the more the economy is relying on private enterprise for stimulation and growth and that aint always healthy.

On consumption tax. Having lived with consumption tax and payroll tax all my life, I can safely say that consumption tax is a bad idea in many ways. Consumption tax (or VAT as its also called) was put in place long ago to put the breaks on an overspending, an overheating economy and the resulting high inflation. The idea was to make good more expensive and hence people would not buy so much. Now that works fine, however it also has a negative aspect.

Once put in place, its hard to remove the tax.. very hard. Its like trying to get a drug addict off drugs. It is also extremely expensive for society to change that tax rate.. think of the costs involved in reprogramming cash registers all the way over to computers.. its not something you want to do often.

Also the poor are hit much harder by such a tax, as they us a bulk of thier money on bare essentials like food, where as for the middle and upper classes food is something you have and luxuary goods is where the "fun" is and where the expensive stuff is. Thats why economists always say that middle and upper classes cause the economy to "boom". But this if you put consumption tax on food stuffs and bare essentials I would not recommend it actually.

While consumption tax is probally needed in the US on non food items, so to stop the overspending, it will also put a dampener on growth, job creation and other stuff, plus make life for less well off people harder. And this will make it hard to sell in a conservative country like the US.

 

[ALiberalModerate]

First off, most people who want the flat tax want to cut government spending and lower taxes as well.
Secondly, if we are paying a true flat tax there would be no payroll tax.
Although I am more for a consumption based tax, lets look at the statements put foward. If we stop taxing dividends and sources of income beyond one's employment then we increase the incentives for Americans to save their money; they can keep more of the money they save. It can be through long-term stock market investments or through putting money into the bank. When you create an incentive to save more you will lessen the need for Social Security, because consumers will have more set aside in banks and stocks. This would then allow legislatures to begin cutting Social Security benefits; we cannot possibly fund our current system, in the long run.
Lastly, you claim this is the most just system, a positive statement. However, what you perceive as just and what someone else perceives as just may be two different concepts. So for one to say that this is the most just system requires a definition of justice otherwise it is a rather vague statement.

1. The median household income in the United States is about 44k a year. That means half of all Americans earn that much or less. At that level of income, it would be impossible for literally half of all households to possibly invest enough to fund their own future retirements and meet their current financial needs.

2. Sure, the same people who are arguing for a flat tax argue for cutting spending. The problem is they were in power for 12 years, had all levels of government for 6 years, and they grew the fiscal size of government more during that period than ever before. So while I would say your ideas sound nice, they obviously have never been the case in the real world.

Fiscal policy must be pragmatic, not something based on a bunch of "If onlys".

 

[Kandahar]

1. The median household income in the United States is about 44k a year. That means half of all Americans earn that much or less. At that level of income, it would be impossible for literally half of all households to possibly invest enough to fund their own future retirements and meet their current financial needs.

Tom Coburn has a good retirement plan. When people are born, the government starts a retirement account for them and puts $1,000 in it. Every year until they're 18 (or 23 and finished with college), their parents can deposit up to $2,000 in the account. After they start work, they can contribute up to $2,000 per year, which their employer matches dollar-for-dollar. If they die before they reach the retirement age, they can put the entire amount into someone else's retirement account or give the money to charity.

This system would work much better than the current SS system.

 

[PeteEU]

Tom Coburn has a good retirement plan. When people are born, the government starts a retirement account for them and puts $1,000 in it. Every year until they're 18 (or 23 and finished with college), their parents can deposit up to $2,000 in the account. After they start work, they can contribute up to $2,000 per year, which their employer matches dollar-for-dollar. If they die before they reach the retirement age, they can put the entire amount into someone else's retirement account or give the money to charity.

This system would work much better than the current SS system.

You write can.. dont you mean must? Else the system is useless. The whole idea of SS and similar systems is to make sure that people have something to live off when they get old. But else I agree in principle.

 

[SFLRN]

Wait a minute, if you cut the dividend and cap gains tax for rich folks who already have investments, then you have to raise the income tax the working folk pay to make up the difference. Won't that reduce the amount of money *they* have to save?
How are you increasing an incentive to save for working folks when you have increased the income tax to make up the difference for the investment tax cuts?

Or do you support the Republican strategy of just borrowing it? What's another few trillion to the national debt?

True, thought we can talk about what most folks think is just. I think most folks think that taxing the workers and not wealthy is not just.

I think you missedthe whole part on how most people who support a flat tax are for cutting taxes in general. Now i am more for a consumption based tax, as I stated earlier. I am for lowering taxes for everyone, every kind of tax. However I would lower the tax most on savings so people can keep more of their money if they choose ot invest it in 401 Ks and the like. That way everyone has that increased incentive to save money. Furthermore, I am not suggesting cut and spend. I am suggesting cut taxes and cut spending as well.

 

[SFLRN]

1. The median household income in the United States is about 44k a year. That means half of all Americans earn that much or less. At that level of income, it would be impossible for literally half of all households to possibly invest enough to fund their own future retirements and meet their current financial needs.

2. Sure, the same people who are arguing for a flat tax argue for cutting spending. The problem is they were in power for 12 years, had all levels of government for 6 years, and they grew the fiscal size of government more during that period than ever before. So while I would say your ideas sound nice, they obviously have never been the case in the real world.

Fiscal policy must be pragmatic, not something based on a bunch of "If onlys".

Simply because the government has not cut taxes and cut spending does not mean high taxes and high spending are something that should happen or that they cannot cut spending.
You are confusing what a libertarian and a Republican Politician are. Libertarians are for cutting taxes and cutting spending to lessen the size of the government. Libertarians are also for shifting more of the governmental powers to the state level. You need not characterize me with conservatives; they are very different from libertarians.
Lastly what proof do you have that Americans could not fund their retirement with what they currently pay into the system for social security? Why not let them gradually keep more and more of that money so they can set it aside? It is true Americans would have to change some of their spending habits, and a consumption tax could help with that. The point is though, that you propose a plan where the government takes the money of the people, and sets it aside for their retirement fund. It prevents them the freedom to spend that money and set it aside as they will. As we also know, the government is not necessarily efficienct in the least with this money, why not let people keep the money they earn, poor, middle class and rich? It follows the philosophy that government should protect the people from their own choices, that the people need some guiding hand of government to steer them on the right path. This philosophy embodies big government ideals, but not the ideals of our founding fathers.

 

[SFLRN]

And the more you cut from the goverment, the more the economy is relying on private enterprise for stimulation and growth and that aint always healthy.

The majority of the time markets are much more efficient than governments. See the growth of China's economy as an example.

On consumption tax. Having lived with consumption tax and payroll tax all my life, I can safely say that consumption tax is a bad idea in many ways. Consumption tax (or VAT as its also called) was put in place long ago to put the breaks on an overspending, an overheating economy and the resulting high inflation. The idea was to make good more expensive and hence people would not buy so much. Now that works fine, however it also has a negative aspect.

Once put in place, its hard to remove the tax.. very hard. Its like trying to get a drug addict off drugs. It is also extremely expensive for society to change that tax rate.. think of the costs involved in reprogramming cash registers all the way over to computers.. its not something you want to do often.

It is expensive for society to conform with any type of government regulation, thus the argument for a smaller government. The tax rate would have to be set somewhat low so as to prevent it from needing constant downsizing.

Also the poor are hit much harder by such a tax, as they us a bulk of thier money on bare essentials like food, where as for the middle and upper classes food is something you have and luxuary goods is where the "fun" is and where the expensive stuff is. Thats why economists always say that middle and upper classes cause the economy to "boom". But this if you put consumption tax on food stuffs and bare essentials I would not recommend it actually.

While consumption tax is probally needed in the US on non food items, so to stop the overspending, it will also put a dampener on growth, job creation and other stuff, plus make life for less well off people harder. And this will make it hard to sell in a conservative country like the US.

I would agree that one can exempt tax on food under a consumption tax.
It will dampen job growth, if you implemented just the tax and did not cut taxes elsewhere. However, if we start cut down the SS spending and the tax as well then people will be able to keep more of their money and invest it in things like the stock market, which will help fuel longer term growth. It is true that the growth rates may be a bit slower.

 

[Iriemon]

Simply because the government has not cut taxes and cut spending does not mean high taxes and high spending are something that should happen or that they cannot cut spending.
You are confusing what a libertarian and a Republican Politician are. Libertarians are for cutting taxes and cutting spending to lessen the size of the government. Libertarians are also for shifting more of the governmental powers to the state level. You need not characterize me with conservatives; they are very different from libertarians.
Lastly what proof do you have that Americans could not fund their retirement with what they currently pay into the system for social security? Why not let them gradually keep more and more of that money so they can set it aside? It is true Americans would have to change some of their spending habits, and a consumption tax could help with that. The point is though, that you propose a plan where the government takes the money of the people, and sets it aside for their retirement fund. It prevents them the freedom to spend that money and set it aside as they will. As we also know, the government is not necessarily efficienct in the least with this money, why not let people keep the money they earn, poor, middle class and rich? It follows the philosophy that government should protect the people from their own choices, that the people need some guiding hand of government to steer them on the right path. This philosophy embodies big government ideals, but not the ideals of our founding fathers.

Given the Govt won't slash spending, do you still support a flat tax of approximatley 25% on every person as the most "just" system?

 

[Iriemon]

Nicely explanation of progressive taxation, although at first I thought it was wrong based on your first few sentences.. would be good to put the following in

If you make between 7,500-30,650 a year, your tax rate on the first 7500 is 10% and then from 7501 to 30.650 it is 15%... just a minor technicallity, as you explain it later on

As for flat tax. Flat tax works in places like Russia because they have stormtrooper tax police that have standing orders of shoot first ask questions later. Flat tax only benifits one group of people.. the rich pure and simple.. its smoke and mirrors politics by the upper class to gain more power and riches. It will not stimulate the economy, nore will it improve the income to the goverment. It might in fact do exactly the opposite and require massive cuts on all fronts to even come near a balanced budget. And the more you cut from the goverment, the more the economy is relying on private enterprise for stimulation and growth and that aint always healthy.

On consumption tax. Having lived with consumption tax and payroll tax all my life, I can safely say that consumption tax is a bad idea in many ways. Consumption tax (or VAT as its also called) was put in place long ago to put the breaks on an overspending, an overheating economy and the resulting high inflation. The idea was to make good more expensive and hence people would not buy so much. Now that works fine, however it also has a negative aspect.

Once put in place, its hard to remove the tax.. very hard. Its like trying to get a drug addict off drugs. It is also extremely expensive for society to change that tax rate.. think of the costs involved in reprogramming cash registers all the way over to computers.. its not something you want to do often.

Also the poor are hit much harder by such a tax, as they us a bulk of thier money on bare essentials like food, where as for the middle and upper classes food is something you have and luxuary goods is where the "fun" is and where the expensive stuff is. Thats why economists always say that middle and upper classes cause the economy to "boom". But this if you put consumption tax on food stuffs and bare essentials I would not recommend it actually.

While consumption tax is probally needed in the US on non food items, so to stop the overspending, it will also put a dampener on growth, job creation and other stuff, plus make life for less well off people harder. And this will make it hard to sell in a conservative country like the US.

I know this is semantics, but folks often describe a "consumption tax" as different than a "sales" tax. The VAT as I understand it is more like the latter -- most VATs impose a tax on every transaction to the extent it increased the cost or "adds value" to the item. A consumption tax is a tax only on "consumed" or retail level items -- which creates another host of problems and issues.

 

[Iriemon]

I think you missedthe whole part on how most people who support a flat tax are for cutting taxes in general. Now i am more for a consumption based tax, as I stated earlier. I am for lowering taxes for everyone, every kind of tax. However I would lower the tax most on savings so people can keep more of their money if they choose ot invest it in 401 Ks and the like. That way everyone has that increased incentive to save money. Furthermore, I am not suggesting cut and spend. I am suggesting cut taxes and cut spending as well.

A progressive tax sounds a lot better if you sell in a mythical world where the Govt spends a 1/3 of what it spends now. Arguing for a system based on a world that doesn't exist is not very persuasive to me. Some might be fooled by it.

Nonetheless, the logical flaw of your argument remains. Assuming you agree there must be some level of tax, regardless of the level of tax, if you elimate taxes on wealth (ie investment) then you most compensate for that loss of tax revenue by having higher taxes on something else - ie income. Which decreases the ability of those who work to save because they have less disposabe income, achieving the opposite result you claim will obtain.

I agree your proposal (which has been significantly enacted by the Republicans, actually, by slashing investment taxes) is a wonderful thing for the wealthier and keeping them wealthier.

If you eliminate investment taxes and the estate (so-called "death") tax, you really create the Republican utopia -- which has been their goal all along, IMO. The wealthy bequeath their hundreds of millions to heirs who receive them tax free, and then invest them and live off investment returns tax free. The wealthy live a tax free existance without having to work a day in their lives while the workers (the little people) pay the taxes. This is the true Republican objective, and they almost completed their goal.

 

[SFLRN]

A progressive tax sounds a lot better if you sell in a mythical world where the Govt spends a 1/3 of what it spends now. Arguing for a system based on a world that doesn't exist is not very persuasive to me. Some might be fooled by it.

I imagine you mispoke here. Simply because we do not have a government that spends very little does not refute whether or not such a government would be beneficial or bad.

Nonetheless, the logical flaw of your argument remains. Assuming you agree there must be some level of tax, regardless of the level of tax, if you elimate taxes on wealth (ie investment) then you most compensate for that loss of tax revenue by having higher taxes on something else - ie income. Which decreases the ability of those who work to save because they have less disposabe income, achieving the opposite result you claim will obtain.

First thing, you're assuming that I am arguing we keep the budget spending at their current levels. I am not, I would rather lower taxes as well as lowering spending, you then would not have to raise any taxes at all.
Secondly, assuming we are trying to hit a certain revenue mark what you would do is lower taxes on bank account interest (to spur saving), or even eliminate them, and allow for more 401k defferments. Then, if maintaining a certain revenue level is the point, you up the consumption tax. However, I am generally for lowering taxes on all groups, not just the rich.

I agree your proposal (which has been significantly enacted by the Republicans, actually, by slashing investment taxes) is a wonderful thing for the wealthier and keeping them wealthier.

Is it just wealthy Americans who own stocks?

If you eliminate investment taxes and the estate (so-called "death") tax, you really create the Republican utopia -- which has been their goal all along, IMO. The wealthy bequeath their hundreds of millions to heirs who receive them tax free, and then invest them and live off investment returns tax free. The wealthy live a tax free existance without having to work a day in their lives while the workers (the little people) pay the taxes. This is the true Republican objective, and they almost completed their goal.

I never mentioned the estate tax. Your statements would be applicable if I were employing old republican rhetoric; I am not.
Republicans and Libertarians are two very different groups.
Libertarians, are for lowering taxes on everyone, because it prevents deadweight loss in technical terms, limits the size of the government, helps preserve economic freedom, and ensures political freedom by preventing a concentration of power, which a large government does.

 

[PeteEU]

I know this is semantics, but folks often describe a "consumption tax" as different than a "sales" tax. The VAT as I understand it is more like the latter -- most VATs impose a tax on every transaction to the extent it increased the cost or "adds value" to the item. A consumption tax is a tax only on "consumed" or retail level items -- which creates another host of problems and issues.

It is semantics.. consumption tax is value added tax pure and simple. You put a tax on goods and services that people consume. There are 2 ways of doing it, either by taking a % of the value of the item and put it on top, or put say 10 cents on every item regardless of value.. the latter is frankly stupid and to my knowledge never been used on a wide scale.

SFLRN wrote:

The majority of the time markets are much more efficient than governments. See the growth of China's economy as an example.

I dont agree. There is no such thing as a free market, and all markets have goverment intervention in some way.. just depends on how much or how little. We all probally belive that food products prices are the result of a free market, well no they are not. They are heavily subsidiesed often in some form. We believe that oil is a free market, again not true. There are taxes and regulations in place that have great impact on the price of oil.

China is a controlled free market economy.. basicly near anarchy until you piss off the wrong people, so not exactly a good example. Plus in China outsiders cant own business, it has to be chinese and the chinese currency is not free floating. Chinas economy is very much goverment controlled and the only reason its "booming" is because a total disregard for human life and the nature around them.

It is expensive for society to conform with any type of government regulation, thus the argument for a smaller government. The tax rate would have to be set somewhat low so as to prevent it from needing constant downsizing.

Its way more expensive to change consumption tax system than a payroll tax system. Most wages are run through very few (relatively speaking) firms who specialize in such things, so changing the tax rate is pretty simple and relatively cheap (basicly pushing some buttons).

On the other hand consumption tax has to be taken at the cash register both in the mom pop store to the big multibillion dollar company. Thats a lot of changes need if the consumption tax needs changing.. think about, not only do the cash registers have to be changed, computer systems handling prices and ordering, but also prices in the window needs changing, as most countries (including the US I believe) have truth in pricing laws (usually part of the truth in advertising and marketing laws). I have seen consumption tax change very few times over the last 30 years, simply because the outcry form business often made politicans think twice. Yes they dont like consumption tax as it dampens the willingness to buy, but a secondary very real problem is the amount of money businesses have to spend to make the new % fit into thier systems. The same whining came (and comes) when countries joined the Euro. It took billions of dollars per country to change from a currency to another and the same things you do when changing currency, needs done when you change the consumption tax %.

To put it into persepective.. vending machines, all vending machines have to have thier prices changed if consumption tax is changed.. and thats only one thing.

I would agree that one can exempt tax on food under a consumption tax.

Or have a lower rate. Spain has 7% on food, 0% on certain medicines, and 16% on luxuary goods. I think the UK has 0% VAT on books and magazines, where as Denmark has 25% one everything.

It will dampen job growth, if you implemented just the tax and did not cut taxes elsewhere. However, if we start cut down the SS spending and the tax as well then people will be able to keep more of their money and invest it in things like the stock market, which will help fuel longer term growth. It is true that the growth rates may be a bit slower.

Personally I think you give people way too much credit in their own money management and frankly the way the US populance spend like there is no tomorrow, the facts talk against them using a tax break on sensible things like personalized SS or savings. It would work in Europe, as we have seen several times with tax breaks (to the annoyance of the politicans), but not off hand in the US.

And as for cutting spending.. you cant just cut spending constantly as most republicans love to do (or at least use to do).. its a danger to the whole idea of a state/country. And what would you cut? In the US, I would cut, military spending and pork.. but we both know that aint gonna happen. So what does that leave us.. programs for the poor, vets and other "lazy people" programs that acutally help people and improves the lives of not so well off citizens.. how about cutting health care for senior citizens.. they gonna die anyways right? I am all for goverments living within their means and a small goverment as possible but I still require goverment to provide certain things.. police, protection, oversight, leadership and so on.

But that also means goverments must have the ability to get the revenue needed to finance said means. If we want a country to have a strong military, then you have to pay for it and that is done by taxes, not cutting spending constantly. If we want goverment to waste billions in pork projects, then you have to get the income to pay for it.. pure and simple. And this is often lost in the debate on smaller or bigger goverment.

 

[SFLRN]

I dont agree. There is no such thing as a free market, and all markets have goverment intervention in some way.

First things first, show me a source that says free markets are not an efficient means of arranging most activity in regards to private goods (goods that are both rival and excludable).

If there is no true free market then does that not show a government that is too powerful? Secondly, food subsidies are on the whole economically bad as well as tariffs. Just because there is such regulation does not mean it is necessarily good. Taxes tend to raise prices and create deadweight loss.

China is a controlled free market economy.

You missed the point. As China has opened themselves up to trade they have seen massive economic growth. Hong Kong proves this once again; it was once considered a 3rd World Country. It is now one of the most economically free countries and has a rather robust economy relative to where it was a few decades ago.

Its way more expensive to change consumption tax system than a payroll tax system.

This assertion of costs is a rather dubious statement considering you have no actual data to support such an assertion. Also, nearly every firm has to participate in a payroll tax, therefore the cost is widespread. Thirdly, most government regulations cost a good deal of money. The bureacracy and the paperwork involved in filling an income tax is enormous, it would then be reasonable to say it does cost just as much as a tax on income, if not more.

On the other hand consumption tax has to be taken at the cash register both in the mom pop store to the big multibillion dollar company...

lol. Companies do not have to report their prices with taxes added. Secondly, your argument is non-unique. Nearly every firm in the U.S. has to comply with payroll taxes. The cost of raising a payroll tax has costs as well. Also, many firms computerize their cash registers so them changing their percentage would not be too hard. The paperwork may be but that is true of any tax. However, when you lower the tax, in the long term, the benefit will outweigh the cost for firms.

Personally I think you give people way too much credit in their own money management and frankly the way the US populance spend like there is no tomorrow, the facts talk against them using a tax break on sensible things like personalized SS or savings.

Yes I do put too much faith in people having control of their own money.
And the way some European Bureacrats manage their economy and spend the people's tax money talks against giving them power over other's money.

I think you're not understanding the concept of people having the freedom to do what they want with the money they spend 9-5, 40 hours a weak earning. I do not think the government should have a large role in being their fiscal nannies.

It would work in Europe, as we have seen several times with tax breaks (to the annoyance of the politicans), but not off hand in the US.

lol So europeans have better money management skills? As proven by their better economies? I'm pretty sure this isn't what you're saying.

its a danger to the whole idea of a state/country. And what would you cut? In the US, I would cut, military spending and pork.. but we both know that aint gonna happen. So what does that leave us.. programs for the poor, vets and other "lazy people" programs that acutally help people and improves the lives of not so well off citizens.. how about cutting health care for senior citizens.. they gonna die anyways right? I am all for goverments living within their means and a small goverment as possible but I still require goverment to provide certain things.. police, protection, oversight, leadership and so on.

Firstly, just because cutting spending is politically difficult does not speak of whether or not it would be better.
Also, the U.S. got along just fine without these kinds of programs. Granted it had failures in monetary policy.
If you wish I can go through a number of places to cut spending in the U.S. It would be somewhat long-winded.
The problem is, all of these things come at the cost of someone else. If people really do feel that certain groups need a certain level of charity then why not make it voluntary. Why not make it so people can freely choose to help others out. I strongly believe that people can and will donate to charities they see fit to donate to.
Secondly, you do not end or completely cut social security overnight. You would have to lessen benefits slowly. But the point is, people should have the freedom to set that aside for their retirement. People are able to set aside the money especially if they do not have a government taking away 1/3 of their earnings. The point remains, that by letting them keep that money they are given the same choices on whether or not to save it or spend it. The point is not how they spend it, but them having the freedom and choice to do so. Your argument presupposes the government is able to make better decisions with their money then they are. And this is simply not true.

But that also means goverments must have the ability to get the revenue needed to finance said means. If we want a country to have a strong military, then you have to pay for it and that is done by taxes, not cutting spending constantly. If we want goverment to waste billions in pork projects, then you have to get the income to pay for it.. pure and simple. And this is often lost in the debate on smaller or bigger goverment.

Of course you have to pay for a good military. I am not arguing for no government. What I am arguing, is that when the government takes up too many roles it creates a concentration of power. Throughout history such concentrations of power have threatened the liberty and freedom of all. "A government that can give you everything you want can take away everything you have," (barry goldwater). Also, when the government takes up too many roles it becomes unable to execute its chief functions; among these is protecting the rights of its people.

 

[rathi]

I dont agree. There is no such thing as a free market, and all markets have goverment intervention in some way.. just depends on how much or how little. We all probally belive that food products prices are the result of a free market, well no they are not. They are heavily subsidiesed often in some form. We believe that oil is a free market, again not true. There are taxes and
regulations in place that have great impact on the price of oil.

While I support progressive taxes, your definition of free-market is flawed. A free market is a market with either serious competition or a low-barrier to enter into that market. The auto industry is a free market, because despite the large amount of government regulation involved in building automobiles, it is a very competitive industry with new player easily able to enter the market.

If there is no true free market then does that not show a government that is too powerful? Secondly, food subsidies are on the whole economically bad as well as tariffs. Just because there is such regulation does not mean it is necessarily good. Taxes tend to raise prices and create deadweight loss.

Food subsidies are indeed highly in-efficient. Although beef would go through the roof if the subsidies were removed and I love steak.

You missed the point. As China has opened themselves up to trade they have seen massive economic growth. Hong Kong proves this once again; it was once considered a 3rd World Country. It is now one of the most economically free countries and has a rather robust economy relative to where it was a few decades ago.

China had massive economic growth for years before it opened up, they are merely trying to transition their economy by opening for trade. Opening for trade can be beneficial, but normally only after some serious infrastructure has been created first. Most economic models only work in certain circumstances.

Yes I do put too much faith in people having control of their own money.
And the way some European Bureacrats manage their economy and spend the people's tax money talks against giving them power over other's money.

I think you're not understanding the concept of people having the freedom to do what they want with the money they spend 9-5, 40 hours a weak earning. I do not think the government should have a large role in being their fiscal nannies.

If corporations actually had to live up to their pensions plans, I'd agree. But without SS, the united workforce would be screwed through no fault of their own.

 

[PeteEU]

First things first, show me a source that says free markets are not an efficient means of arranging most activity in regards to private goods (goods that are both rival and excludable).

Never said that and I dont deny that "free markets" are better. I did say there is no such thing as a free market, that all markets have some goverment intervention.. well maybe hookers dont

If there is no true free market then does that not show a government that is too powerful?

No, it shows the free market is not as good as it should be. Why is there goverment meddling in the free market? Because the free market is often slow to react, and very bad to do whats best of the "people".. free market focus more on the bottom line than other issues. If free market was so perfect, then the free market would long ago have made more fuel efficient and less polluting cars, but it did not.. goverment had to step in and force companies to do so.

Secondly, food subsidies are on the whole economically bad as well as tariffs. Just because there is such regulation does not mean it is necessarily good. Taxes tend to raise prices and create deadweight loss.

Yes subsidies are "bad" in one way, but also "good" in another way. If it was not for subsidies then many farmers would not be around, both in the US and in Europe.. and that would have been political sucide. The same goes for steel, and other industries in Europe and the US. I dont like subsidies but I do see thier political need at times, when the free market is no where near free and the political situation demands it.

You missed the point. As China has opened themselves up to trade they have seen massive economic growth.

They have opend up to trade on their terms and those terms are not free market. Big difference. India also has seen big growth, but they have also not opened up to the free market, but to their own controlled access free market.

Hong Kong proves this once again; it was once considered a 3rd World Country. It is now one of the most economically free countries and has a rather robust economy relative to where it was a few decades ago.

Okay, go read a history book. Hong Kong has been one of the financial capitals in the world for over 100 years. Under British rule it flurished. China kept the liberal laws in place for the most part, because they knew that it Hong Kong was a gold mine and they were right. Hong Kong was also a producing mega star for many years, especially within the clothing sector, but as in all booming societies things change over time. Hong Kong was a 3rd world area maybe over a 100 years ago, but hardly in the latter part of the 20the century.

This assertion of costs is a rather dubious statement considering you have no actual data to support such an assertion.

Acutually there is. The Euro launch. Cost billions in changes from everything from cash registers to vending machines and its the same principle.

Also, nearly every firm has to participate in a payroll tax, therefore the cost is widespread.

Yes but many companies use a 3rd party expert to do thier payrolls and hence their payroll tax. This limits the costs quite a bit.

Thirdly, most government regulations cost a good deal of money.

Yep it does.

The bureacracy and the paperwork involved in filling an income tax is enormous, it would then be reasonable to say it does cost just as much as a tax on income, if not more.

Dont understand this statement.. what costs more?

lol. Companies do not have to report their prices with taxes added.

To the normal consumer? Does that mean that the prices on the shelves in Walmart can be written without various taxes, that are only added at the cash register? So that if I buy say 1 gallon of Cola, the price listed on the shelf is say 1 buck, but with taxes of various kinds, it in reality 2 bucks when I have to pay at the cash register?

Secondly, your argument is non-unique. Nearly every firm in the U.S. has to comply with payroll taxes. The cost of raising a payroll tax has costs as well.

Yes its expensive, but see my comment when you mentioned this before.

Also, many firms computerize their cash registers so them changing their percentage would not be too hard.

Yep, many, but not all. And its not just cash registers is it now? Computer systems of various kinds, vending machines, billboards, advertising and so on.

The paperwork may be but that is true of any tax. However, when you lower the tax, in the long term, the benefit will outweigh the cost for firms.

I agree, but thats not what we discussing. We discussing the "benifits" of consumption tax.

Yes I do put too much faith in people having control of their own money.
And the way some European Bureacrats manage their economy and spend the people's tax money talks against giving them power over other's money.

And you base the last comment on? If you look at the most "socialist" countries in Europe, they are in fact matching (some even outpreforming) the US on many fronts, which is kinda funny. I dont deny that some European nations suck in some areas of managing their economies, but we Europeans have different priorities than Americans when it comes to such things. That dont mean the economies "suck", just that they are different.

I think you're not understanding the concept of people having the freedom to do what they want with the money they spend 9-5, 40 hours a weak earning. I do not think the government should have a large role in being their fiscal nannies.

I understand it fully and I agree the goverment should have a small as possible role in telling people what to do with their money. But we also have to be realistic. If it takes goverment ordered savings to make sure that the govmerment (and thats you and me too) in the future dont have to deal with massive amounts of old people who did not think to save up for their old age, or people who could give a rats *** about it... then I say force people to save. Its good for the economy in the long term and hence good for the nation as a whole. If this saving is done via the tax system or some sort of forced investment thingy... dont care, as long as its done.

lol So europeans have better money management skills? As proven by their better economies? I'm pretty sure this isn't what you're saying.

Nope, did not say European goverments.. I said europeans. We have lower personal debt rates and higher savings rates in general (which aint hard when comparing to the US).

But I will give you an example. About a decade ago, Danes recieved a tax cut that could be felt.. sent to them in a check even (first time ever I think, done this way). Did it spur a massive spending spree.. nope, it did however cut debts and increased savings, which was not the intention of the goverment. It took another tax break and lots of publicity to even see a bump in consumption which was the goal. Now lets look at the US. I know that americans recieved a tax break not long ago.. did they cut thier debts or increased saving? Or did they spend even more?

Firstly, just because cutting spending is politically difficult does not speak of whether or not it would be better.
Also, the U.S. got along just fine without these kinds of programs. Granted it had failures in monetary policy.
If you wish I can go through a number of places to cut spending in the U.S. It would be somewhat long-winded.

I dont agree with that the US got along just fine. Maybe for the rich, but not for the majority of the population. Much of the economic "boom" happened after the "socialist" ideas of SS and others were implemented. One can debate what impact said ideas had, but I know in Europe they had big impacts.

The problem is, all of these things come at the cost of someone else. If people really do feel that certain groups need a certain level of charity then why not make it voluntary. Why not make it so people can freely choose to help others out. I strongly believe that people can and will donate to charities they see fit to donate to.

See this is where Americans and Europeans differ. You seem perfectly willing to have millions of poor starving people, just as long as its not your problem. Europeans see such things as societies failure and societies (with the goverment in a natural front role) to fix these problems. I am guessing it comes from out secular life, where chruch is not part of the equation anymore... something about 1000+ plus years of the church keeping the ordinary man down in poverty thing.

Secondly, you do not end or completely cut social security overnight. You would have to lessen benefits slowly. But the point is, people should have the freedom to set that aside for their retirement.
People are able to set aside the money especially if they do not have a government taking away 1/3 of their earnings. The point remains, that by letting them keep that money they are given the same choices on whether or not to save it or spend it. The point is not how they spend it, but them having the freedom and choice to do so. Your argument presupposes the government is able to make better decisions with their money then they are. And this is simply not true.

And what if they dont spend it on a retierment fund? Who will pay for them when they get old then? Or would you just have them put down because they cant pay their own way? Or leave them to starve on the streets.. you do know that was why SS was put in place in the first place right?

I am all for giving as much money to people as possible. However I will not sit around and pay for someone who could not be bothered to save, when it could have been avoided by forcing every single person to save X% of their income in one or several forms of saving.. heck they could even chose which, just as long as they saved for their old age.

And SS dont prevent people from having their own retirement plan does it now?

Of course you have to pay for a good military. I am not arguing for no government. What I am arguing, is that when the government takes up too many roles it creates a concentration of power. Throughout history such concentrations of power have threatened the liberty and freedom of all. "A government that can give you everything you want can take away everything you have," (barry goldwater). Also, when the government takes up too many roles it becomes unable to execute its chief functions; among these is protecting the rights of its people.

I agree fully (well not the good military part). Its defining goverments role thats the problem.

 

[PeteEU]

While I support progressive taxes, your definition of free-market is flawed. A free market is a market with either serious competition or a low-barrier to enter into that market. The auto industry is a free market, because despite the large amount of government regulation involved in building automobiles, it is a very competitive industry with new player easily able to enter the market.

No. A free market is a market where buyer and seller negotiate the price of a good, and should have full knowledge of all issues. This way you would get a true free market. Once you remove the full knowledge bit, and add just one tax or regulation, then the buyer and seller can not get to the true market equilibrium.

However for the sake of argument we can say free market is what we have in the US and Europe, because supply and demand are some what used in determining prices.

As for the auto industry... it has big entry barriers. Name one new car brand put on the market without goverment help or the massive investment of a billionare...say with in the last 3 decades.