Progressive Income Tax?

[hspder]

[quote]Headhunter wrote:
I still chuckle when I someone says things are ‘free’. They are not free to the productive people who were forced to provide the ‘free’ gravy train.

‘Free’! Arrrrgggghhhh![/quote]

If you stopped speculating on your assumptions and actually looked at the numbers, you’d see that the amount of money that the “productive people” in Denmark are “forced” to give away for those services PALES in comparison to ANY health insurance you can get here – or of any bill you might get from an hospital if you decide to go the “I don’t need a health insurance” insanity route.

So, it’s OK to fill the pockets of the pharmaceutical companies, health providers and/or the insurance companies, but it’s NOT OK to pay taxes?

You keep failing to realize that, whatever it is, if you don’t pay it in tax, you’ll pay more of it somewhere else. Unless you decide to live alone in a bubble and kill yourself at the first sign of disease.

[ZEB]

[quote]GDollars37 wrote:

Good point, looking at it now that’s not how I would have liked to have phrased it. I was trying to say that the money has to come from somewhere, and making the very rich pay a higher percentage, unfair as it may be, makes the most sense much of the time.

But you assume that any money saved on taxes gets pumped back into the economy. Doesn’t really work that way, the money goes where the returns are, and increasingly that’s developing economies like the BRICs (Brazil, Russia, India, China). It’s not neccessarily going to be stimulating our economy, aside from employing a few extra guys at Goldman Sachs.[/quote]

I think you might be confusing the very very rich with the rest of those who have built nice businesses and really don’t like the government stealing their money.

How much money goes abroad? It’s a very small percentage. And you and I cannot tell what the super rich would do if they had more money to deal with.

But we do know that the more money that business people have the more the economy stands a chance to expand by the use of that money.

Finally, it’s really none of our business how anyone chooses to spend or invest THEIR money.

The government needs a compelling reason to take it to begin with. the individual should not have to give a compelling reason to keep it.

No, it could certainly be better here, but it’s not at the point where it kills the financial incentive to make money and expand or build businesses. Big difference.

The truth is neither of us knows for sure how much more the economy would be helped if we did not live under this horrible repressive tax system.

I do know this: when people (that would be everyone) have more money in their pockets they will either spend it, invest it or save it.

I like all three of those over giving to the government to use inefficiently.

After Social Security, defense spending is the single largest piece of the federal government, accounting for nearly 20% of overall federal spending, more than Medicare and Medicaid put together.

US military spending as a percentage of GDP is about 4%. This figure is tiny in comparison to the percentage spent during WW II.

http://www.truthandpolitics.org/military-relative-size.php#gdp-graph

I’m not saying we should raise taxes, of course we shouldn’t, they’re too high already. But unless someone (and it won’t be Bush) is willing to slash entitlement spending or come up with a creative solution (see Charles Murray’s new book), then a big tax hike is in our near future.

I could not agree with you more on this final statement!

But as you know sacred cows die hard…if at all.

[hspder]

[quote]ZEB wrote:
You have not demonstrated why the simplw flat tax (with only one exception for the poor) will not work.
[/quote]

Well, I know I’ll be wasting my time when I explain this to you, but I just can’t help it…

If you actually sit down and crunch the numbers, you’ll realize that in order to even MAINTAIN the current US government’s income (which clearly is not enough, considering the huge budget deficits) with the tax structure you propose, it would cause the middle class to not be able to afford living in most places in this country, since they would have to be charged much more than they are now to compensate for the lower tax burden on the rich. Most middle class people I know have little to no disposable income right now, so increasing the tax burden on them would generate a catastrophe.

You might argue “let’s keep their taxes at the current level, reduce for the rich and reduce government expenditure then”, but the amount of reduction necessary in order to accomplish that would, realistically, require either a complete shutdown of all Medicare and Social Security payments – leaving millions of people to die – OR a 90% reduction in DoD spending – something I’d be very much comfortable with, but I can safely guess you aren’t.

So, to make a long story short: unless you’re willing to sacrifice either millions of people or our insane DoD budget, your proposal would not be economically possible.

You can see it this way: rich people are paying for our DoD spending, most of which is coming back to them in the form of Defense contracts.

This is not a joke: in fact, if you look at the sources of revenue of most successful US companies – in all areas, from IT to Heavy Industry – you’ll see that a HUGE chunk of their revenue is the Federal Government and/or the DoD. So these people are rich BECAUSE they pay taxes that allow the government to buy stuff from them. If they stopped paying as much tax, the Government would NOT be able to buy their products and services and they’ll make much less money…

Does that make you feel better?

[vroom]

With a consumption tax, you can exempt the basics of survival.

For example, food, which all people must have, including the poor, can be exempt from consumption tax.

Similarly, if perhaps rent and mortgage payments are exempt, you have a vehicle of savings and home purchase which is not made harder for the poor.

Above and beyond that, buying fancy clothes, fancy cars, walkmans, ipods, 27" TV’s, walk in freezers and so on will be taxed.

Anyway, sure, many things to work out, but don’t assume a consumption tax has to be all that regressive.

Not mentioned, but again, the biggest thing to consider, is that as a consumer we have a lot of control over what we purchase. We’ll factor in the entire cost of the purchase and make our decisions accordingly.

Also, if our income isn’t taxed, we can invest our entire income, not just the after tax portion. Whether or not anyone actually does is another story, but the advantage of doing so should be quite apparent. Depending on your investment return you may find your taxes are payed by appreciation when it comes around to be time to actually spend your cash.

Yeah, okay, I’m in dreamland, but it’s nice here! Headhunter, you still think I’m making this up just to mislead you as to my actual position? Hello, McFly?

[danmaftei]

ZEB, let’s take this to PMs, it’s really one-sided on our part.

I have to go now, but by tomorrow I’ll PM you so we can finish this up.

[hspder]

[quote]ZEB wrote:
US military spending as a percentage of GDP is about 4%. This figure is tiny in comparison to the percentage spent during WW II.[/quote]

It is a meaningless and biased number. What matters is the US military spending as % of GOVERNMENT INCOME.

Look at 2005’s absolute budget numbers (or as a % of INCOME):

Income: 2,036 B
DoD: 402 B (20%)
DoD+DHS: 432 B (21%)

Why? Well, when you go to the bank to ask for a loan, in order to evaluate if you’re able to pay for your bills, do they ask you how much money do you make (your income), or do they just look at the GDP per capita?

Yes, your argument is that silly.

Furthermore, banks will look at living expenses in two groups – the ones you can’t get away from (like rent, car payments, etc.) from the ones you can.

The latter is called “Discretionary budget” when talking about Federal budget, and, in that respect, the weight of the DoD is even higher:

Discretionary budget Total for 2005: 818 B
DoD: 402 B (49%)
DoD+DHS: 432 B (53%)

You did not address the fact that we make Federal Medicare, Social Security and Federal Income Tax separately, so technically Social Security and Medicare expenditure are a separate item from this discussion – since income for them is also separate. So typically we should look at this as the Federal Income Tax going into Discretionary spending (SS and Medicare would fall into the “Mandatory spending” category), so the above # (49% for DoD) is in fact the most relevant one.

I gave you the benefit of the doubt in my previous post and assumed that when you said “flat tax”, you were referring to these three together, but I did that for the argument’s sake – and in fact you didn’t address that directly… Either way, it strengthens the point that if one was to reduce the Federal Income Tax, the place to look at first and foremost is the DoD… which accounts for 49% of where THAT money goes.

[ZEB]

[quote]hspder wrote:
ZEB wrote:
You have not demonstrated why the simplw flat tax (with only one exception for the poor) will not work.

Well, I know I’ll be wasting my time when I explain this to you, but I just can’t help it…

If you actually sit down and crunch the numbers, you’ll realize that in order to even MAINTAIN the current US government’s income (which clearly is not enough, considering the huge budget deficits) with the tax structure you propose, it would cause the middle class to not be able to afford living in most places in this country, since they would have to be charged much more than they are now to compensate for the lower tax burden on the rich. Most middle class people I know have little to no disposable income right now, so increasing the tax burden on them would generate a catastrophe.

You might argue “let’s keep their taxes at the current level, reduce for the rich and reduce government expenditure then”, but the amount of reduction necessary in order to accomplish that would, realistically, require either a complete shutdown of all Medicare and Social Security payments – leaving millions of people to die – OR a 90% reduction in DoD spending – something I’d be very much comfortable with, but I can safely guess you aren’t.

So, to make a long story short: unless you’re willing to sacrifice either millions of people or our insane DoD budget, your proposal would not be economically possible.

You can see it this way: rich people are paying for our DoD spending, most of which is coming back to them in the form of Defense contracts.

This is not a joke: in fact, if you look at the sources of revenue of most successful US companies – in all areas, from IT to Heavy Industry – you’ll see that a HUGE chunk of their revenue is the Federal Government and/or the DoD. So these people are rich BECAUSE they pay taxes that allow the government to buy stuff from them. If they stopped paying as much tax, the Government would NOT be able to buy their products and services and they’ll make much less money…

Does that make you feel better?
[/quote]

You have made many fundamental errors in your analysis. I will point out two of them:

1-You have lumped all “rich” people. As if the guy who lives next door to me who is worth 2 million dollars has anything at all to do with Donald Trump. You also sort of blened to gether defense companines with other “rich” people.

2-You have failed to grasp the very sweetest part of the flat tax concept: There are NO loopholes in the system! Now let’s see who uses loopholes? That would be the rich.

The flat tax system would put less of a burden on the middle class giving them more money in their pockets. The disposable income that you claim they currently do not have.

I do appreciate you responding to me post however.

Thank you.

[ZEB]

[quote]vroom wrote:
With a consumption tax, you can exempt the basics of survival.

For example, food, which all people must have, including the poor, can be exempt from consumption tax.

Similarly, if perhaps rent and mortgage payments are exempt, you have a vehicle of savings and home purchase which is not made harder for the poor.

Above and beyond that, buying fancy clothes, fancy cars, walkmans, ipods, 27" TV’s, walk in freezers and so on will be taxed.

Anyway, sure, many things to work out, but don’t assume a consumption tax has to be all that regressive.

Not mentioned, but again, the biggest thing to consider, is that as a consumer we have a lot of control over what we purchase. We’ll factor in the entire cost of the purchase and make our decisions accordingly.

Also, if our income isn’t taxed, we can invest our entire income, not just the after tax portion. Whether or not anyone actually does is another story, but the advantage of doing so should be quite apparent. Depending on your investment return you may find your taxes are payed by appreciation when it comes around to be time to actually spend your cash.

Yeah, okay, I’m in dreamland, but it’s nice here! Headhunter, you still think I’m making this up just to mislead you as to my actual position? Hello, McFly?[/quote]

I don’t like the consumption tax for a few reasons: I don’t want to discourage spending.

While currently we are in a drunken spending binge, I would hate to see it totally reverse itself. This would be detrimental to the economy.

Also, this is unfair to those who actually make more money, not unlike the lousy oppressive system that we currently have.

If person “A” can afford a Mercedes and person “B” can only afford a used chevy why should person “A” be penalized?

No, sorry vroom we are not going to have a consumption tax. It’s going to be the flat tax and that’s that.

[hspder]

[quote]vroom wrote:
With a consumption tax, you can exempt the basics of survival.

[…]

Yeah, okay, I’m in dreamland, but it’s nice here! Headhunter, you still think I’m making this up just to mislead you as to my actual position? Hello, McFly?[/quote]

Well, I usually don’t disagree with you, and you even had a BTF quote (one of my favorite movies of all time), so I’ll try to be extra nice.

You are in dreamland.

OK, that wasn’t nice. Let me rephrase that: it has been attempted before, and it fails in a Capitalist economy.

If you focus a lot on Consumption Tax, you provide incentives for a type of behavior that a) Makes a reliable budget close to impossible (you can’t predict as safely how much money you’re getting – a dilemma most US counties have with their reliance in Sales Tax) b) Defeats the purpose of Capitalism, which is to keep the money flowing through “layers of added value”

and c)studies have proven that it actually creates an even bigger assymetry in wealth – because in fact people who become wealthy generally tend to save and invest rather than spend – and when they spend, find the cheapest possible source of the goods or service, even if it’s on the other side of the planet – and people who are not wealthy tend to over-spend on goods; an increase in consumption tax, as shown in European countries (which made that mistake a few times), AUGMENTS that behavior, in the sense the poor continue to spend money on “bling” – even with the added tax on top of it, even if it means that they’ll be in debt – while the rich will basically get on their yacht or private jet and go buy stuff somewhere else where they don’t have to pay the tax.

Any tax policy has to take into account several assumptions:

1. It has to be predictable
2. People are stupid / irrational
3. Rich people will find ways to beat it

[vroom]

[quote]If person “A” can afford a Mercedes and person “B” can only afford a used chevy why should person “A” be penalized?

No, sorry vroom we are not going to have a consumption tax. It’s going to be the flat tax and that’s that. [/quote]

LOL, not so fast Zeb.

By your own words, since the rate of tax on the Mercedes and Chevy is the same, the tax system is fair. Neither is penalized at all.

Are you yourself arguing for a flat tax? I’m talking about a flat percentage consumption tax, not a tax rate based on dollars spent.

Spending is not actually going to slow down much… what people want is not dictated by how much things cost. They want, want and want, which means they spend, spend and spend, whether or not they can afford it. Human nature will not change just because we change the point of taxation.

The consumption tax is fairer than income tax!

[orion]

[quote]ZEB wrote:
What is the “public need?” And at what point does that public need supercede the right for YOU and I to keep what we worked hard for?
[/quote]

Roflmao…

The “but the needs of society” argument ends with you, where your pockets begin…

But, if the issue of drug consumption is discussed, this zombie raises its ugly head again…

“Society” wants what Zeb wants= good!

“Society” wants what Zeb does not want:

Is there a society?

Who determines its needs?

Should “societies” needs be more important than the freedom of an individual that actually exists?

Any thoughts?

PS: I will cure you from socialism, oh yes I will…

[vroom]

HSP,

I know I’m in dreamland, but I don’t agree with the needs of the government being the determining factor in how we should be taxed. I feel that the needs of the government should take a back seat to the convenience of the populace.

Also, just like we don’t create laws based on whether or not people will obey them, I don’t believe we should design taxation based on whether or not people use wise financial strategies when they have the opportunity to.

Honestly, I consider income tax percentage financial slavery. It’s obvious that 100% income tax is exactly that. So, I have to ask you, what percentage of financial slavery is appropriate?

That is a question I have difficulty answering…

Now, with respect to rich people and avoidance of tax, I think our current system is much more at risk. Our rich folks have every incentive to get their money offshore, and to earn income in ways that either doesn’t appear to be income or is not visible and is not reported.

Consumption happens where you live. It doesn’t matter where you hide your money, or where you earn it, you still have to spend it. Obviously, most of it will be spent where you live and work, as you go about your daily routines, so that you can enjoy the fruits of those expenditures.

[skor]

On the simplest level, progressive tax is “more fair” because utility of money is NOT a linear function, but a concave one - marginal utility of money decreases are wealth increases. Doubling your wealth doesn’t double the utility.

What progressive tax “achieves” is a more uniform (across incomes) tax on UTILITY of money, not money itself.

[hspder]

[quote]ZEB wrote:
The flat tax system would put less of a burden on the middle class giving them more money in their pockets. The disposable income that you claim they currently do not have.[/quote]

None of your arguments point to that.

You seem to have a very poor grasp of basic Math.

First, how can a flat tax in the ballpark of 15% only for people that make more than $30k can provide the US Government with 17% of the GDP (that’s how much it is now), especially taking into consideration all the overheads, all the deductible expenses, and all the money that leaves this country?

Tell me, I want to know.

Second, do note that currently, even if you JUST consider what you can deduct from your income for Federal Tax Purposes (so, forgetting for a moment about GDP and what part of it leaves our country and what part is lost to overhead), the middle class already pays less than 15% tax (with how much money they are paying for their health insurance and their mortgages, plus the 401k and IRA savings, the deductions pile up like crazy), so your proposal of a 15% flat tax would be in fact an increase for them. Unless you put in the same deductions, in which case they would pay in reality something like 7%.

So where were you going to get the 17% of the GDP again?

[hspder]

[quote]vroom wrote:
Spending is not actually going to slow down much… what people want is not dictated by how much things cost. They want, want and want, which means they spend, spend and spend, whether or not they can afford it. Human nature will not change just because we change the point of taxation.[/quote]

What you say is very true for the lower classes, but it is not for the higher ones. Over here in the US, for example, while people with lower incomes routinely buy retail, it is the people with the higher incomes that shop around, and save on Sales Tax by buying from other states. The richest actually shop around at the Global Level and go buy almost everything of value where it’s cheapest – and has the least tax.

If I remember correctly, in the NY area, many people go specifically to NJ to buy clothes because Sales Tax is 0% for clothes in NJ.

Even in Europe, people routinely cross the border to shop for things in countries that have lower VAT rates. In Germany, whole malls were open just across the border from The Netherlands to cater to people who preferred the German 16% VAT rate to the Dutch 19%.

Now that Germany is going to increase their VAT rate to 19%, people are predicting a steep decline in consumption, not only from the Germans, but also from all the people from surrounding countries that no longer will go to Germany to buy stuff.

You can close these loopholes inside the US, but that will just increase the incentive to shop outside the US.
Canada and Mexico could potentially make millions by exploiting that, so trust me – they would.

On the other hand, if Canada adopted it, I’m fairly willing to bet the US would exploit it.

It is a Global Economy, remember that…

[hspder]

[quote]vroom wrote:
I know I’m in dreamland, but I don’t agree with the needs of the government being the determining factor in how we should be taxed. I feel that the needs of the government should take a back seat to the convenience of the populace.[/quote]

How do you distinguish the two?

[quote]vroom wrote:
Also, just like we don’t create laws based on whether or not people will obey them, I don’t believe we should design taxation based on whether or not people use wise financial strategies when they have the opportunity to.[/quote]

Well, when we’re talking about billions of dollars, we just need to be pragmatic and take into account everything, including how realistically we can expect people to behave.

If people would “just behave”, why have laws in the first place?

[quote]vroom wrote:
Honestly, I consider income tax percentage financial slavery. It’s obvious that 100% income tax is exactly that. So, I have to ask you, what percentage of financial slavery is appropriate?[/quote]

Many people in North America agree with you. That is in fact the primary reason why North America has right-wing governments – because they promise lower taxes.

I have, however, a question for you: what do you think most determines a salary: the gross or the net?

One of the fundamental rules of economy is that, in a competitive (non-Cartel) environment, the market defines the price. How do you feel that the job market is defining the salaries? Based on the gross or the net salaries?

Currently, in CA, salaries are the highest in the country – over $60k average gross. Do you, for one moment, believe that has nothing to do with us having some of the highest combined taxes (State + Federal) also?

Basically, my point is that in reality it’s the companies that pay for your income taxes – if the taxes were lower, I’m fairly willing to bet your gross income would be lower too – rather than your net being higher.

Does it make you feel better if you think about it that way?

[quote]vroom wrote:
Now, with respect to rich people and avoidance of tax, I think our current system is much more at risk. Our rich folks have every incentive to get their money offshore, and to earn income in ways that either doesn’t appear to be income or is not visible and is not reported.[/quote]

True. And that’s a huge problem. But a) only the extremely wealthy actually go ahead and do that and b) There are relatively easy ways to prevent that, considering the amounts involved – the IRS just hasn’t had the policy push to actually do it.

[quote]vroom wrote:
Consumption happens where you live. It doesn’t matter where you hide your money, or where you earn it, you still have to spend it. Obviously, most of it will be spent where you live and work, as you go about your daily routines, so that you can enjoy the fruits of those expenditures.[/quote]

True many years ago, but False now. People have the Internet and cheap Shipping and Travel. I’ve described several situations where people do go out of their way to pay less Sales Tax (or VAT).

The only spending that will be, in the majority, where you live and work, is the type of spending you argued should be tax-free (rent and food).

[vroom]

HSP,

It’s not hard to deal with international issues… especially if this is a federal tax.

By the way, Canada already has a GST and allows visitors to claim it back, the same with Britain and the VAT.

Seriously, rich people are still going to have their mansions cleaned, their cars tuned, their shrubs sculpted and so on.

Unless they want to leave the country entirely, which they are free to do today as well, all the cash they spend will still be spent… and as long as they live in the country, it doesn’t matter how much they shop around, they still have to buy their things.

This is the issue with consumption, we all do it… and we do it where we live. However, rich people, and some upper middle class, can divert earnings and holdings into tax advantageous structures or offshore havens.

All that bullshit becomes moot with simple consumption taxation. Seriously, I recognize the issues you raise, but it is not very hard to compensate for the issues being raised.

[ZEB]

[quote]vroom wrote:
If person “A” can afford a Mercedes and person “B” can only afford a used chevy why should person “A” be penalized?

No, sorry vroom we are not going to have a consumption tax. It’s going to be the flat tax and that’s that.

LOL, not so fast Zeb.

By your own words, since the rate of tax on the Mercedes and Chevy is the same, the tax system is fair. Neither is penalized at all.[/quote]

The rich guy gets penalized for being able to afford a Mercedes.

Are you yourself arguing for a flat tax? I’m talking about a flat percentage consumption tax, not a tax rate based on dollars spent.

Correct me if I’m wrong. You are stating that there would be a 10% (for example) consumption tax on all vehicles purchased, based upon the retail sale price of the vehicle.

True?

Spending is not actually going to slow down much… what people want is not dictated by how much things cost. They want, want and want, which means they spend, spend and spend, whether or not they can afford it. Human nature will not change just because we change the point of taxation.

Are you sure about that?

I know that if I were paying a tax on any new car purchase for example, I would put that purchase off or buy a cheaper car just to beat the tax. I’m sure others feel the same way.

The consumption tax is fairer than income tax!

Please explain your definition of “fair” in this case.

It seems punitive for all who have a large disposable income.

Being taxed once in a flat fair way is far better than being taxed over and over again based upon how much you purchase.

[ZEB]

[quote]orion wrote:
ZEB wrote:
What is the “public need?” And at what point does that public need supercede the right for YOU and I to keep what we worked hard for?

Roflmao…

The “but the needs of society” argument ends with you, where your pockets begin…

But, if the issue of drug consumption is discussed, this zombie raises its ugly head again…

“Society” wants what Zeb wants= good!

“Society” wants what Zeb does not want:

Is there a society?

Who determines its needs?

Should “societies” needs be more important than the freedom of an individual that actually exists?

Any thoughts?

PS: I will cure you from socialism, oh yes I will…[/quote]

There is a public need.

But…there is a “private right” to keep what you earned.

I imagine that if it were up for a public referendum the voting public would vote to keep their money, at least a larger share of it than they do now.

[ZEB]

[quote]skor wrote:
On the simplest level, progressive tax is “more fair” because utility of money is NOT a linear function, but a concave one - marginal utility of money decreases are wealth increases. Doubling your wealth doesn’t double the utility.

What progressive tax “achieves” is a more uniform (across incomes) tax on UTILITY of money, not money itself.[/quote]

I’m sorry…BULL!