I think if you could construct a hypothetical tax system with perfect knowledge and compliance, a wealth tax with progressive rates (richer people pay a higher percentage-rate) is what most people would agree is fairest. France has a wealth tax. Problem is it's a pain in the ass to assess someone's wealth (artwork, jewelry, etc.), so compliance is a big issue. Instead, nearly every country does an income tax, which is a decent surrogate; and nearly every country has progressive rates, which reflects public sentiment that the richer you are the more you should contribute to society.

So it seems to me that that should be enough: we set the rates to whatever the government will need in revenue, and we have every person pay what their share is deemed to be, and that's essentially the totality of the tax policy. No need for corporate taxes, which are hard to enforce and enable countless accounting tricks or incorporating overseas. (I see no benefit to holding money indefinitely in a corporation--what matters is that money going to actual people, and when it does, it would get taxed as income.) No need for payroll taxes--just let the business owner pay the employee instead of the government, and then the employee will pay whatever his appropriate tax is.

Lastly, the broad-based aspect means that there are no exemptions. No charity deductions, no mortgage-interest deductions, nothing. If the government wants to incentivize a behavior, it pays for it with separate legislation. Experience has shown politicians can't be trusted to not hide exemptions in bills to pay off their donors, and ultimately all those exemptions are paid by someone else's taxes. The great benefit of this broad-based approach is that people can't avoid taxes by exploiting complex loopholes--there are no loopholes. Whether your money came from dividends, wages, carried interest, it's all taxed at the same rate because it's all just income. (The objection that capital gains are taxed twice is no longer true, since there is no corporate tax.) Tax preparers and tax lawyers would need to find new jobs, and the country would save billions of hours and billions of dollars because doing your taxes would take three minutes. Also, the rich couldn't use lawyers and loopholes to avoid paying their set rate.

Among economists, the typical recommendation is to have as diverse a base as possible--a corporate tax, payroll tax, value-added tax, income tax, and occasionally a wealth tax, each at a relatively low rate. Why does no one ever opt for only a broad-based income tax, since taxing income is ultimately what we care about?

Tell me how much the top $100K+ earners make each year, in aggregate, and you'll answer your own question.

Also, some questions for you as your position doesn't seem to be based on anything that I can see.

1. Why is it better to tax income and not expenditure? You're only gaining the benefits of your money when you spend it - why not pay tax then? You also can't cheat on it like you can with income tax. Europe has a 20% VAT (Value Added Tax) for example.
2. Would you support taxing poorer people more? Or is this just a hit on the rich?
3. How do you stop top income earners leaving if you tax them heavily?
4. Why should corporations pay no tax? If you tax the workers more while taking the tax off corporations, doesn't that just privilege corporations over workers? Isn't that the opposite of what the cucks are fighting for?

you see no benefit to tax deferral?

I don't really agree with this. Let's say we have two people: Person A & Person B and they both make 100k this year. Person A spends it all, Person B spends half. Person A faces no tax and Person B faces a tax. What logic does this make? You should encourage saving money, not blowing money.

ToothSayer:

I don't know what the aggregate income of all those earning over 100k is--one source I have says AGI for them is around 5 trillion a year; another implies their gross income (not adjusted) is over 10 trillion.

Last year the 100k+ earners (about 10% of taxpayers) earned about half of all AGI reported, and paid about 70% of all income tax collected, at an average income-tax rate of about 21%.

I don't see how this data answers my question.

1. A VAT ideally does the same thing a sales tax does. The two main reasons to have a VAT as opposed to a sales tax is to reduce variance in collection during economic slowdowns, and improve compliance because businesses police themselves (since they must report payments to get reimbursed from the government) for all but the last sale (to the consumer, who ultimately pays the whole tax as sales tax). The first problem with a VAT is that it's a pain to get one started (especially in the US where we already have varying sales taxes in many states). A more significant problem is that it's a regressive tax--because you can't discriminate based on income at the point of sale, the wealthy pay the same rate as everyone else, so it's essentially a flat tax, and lower-income people would be taxed much more than under our current system. (If you want lower-income people to pay a higher rate, you could just raise their income tax rate.)

As for cheating, if the broad-based approach is taken where there are no exemptions or loopholes, cheating shouldn't be much of an issue. With a VAT, businesses can cheat with the last transaction the same way US companies cheat now in states with sales tax.

2. I'm fairly agnostic on what rates poor vs. rich would be paying. But once those rates have been decided by politicians or economists or whoever, my question is why not just take the transparent and simple approach to having all revenues paid through income tax.

3. This question implies that the income-tax-only approach would tax the rich more heavily than our current system. I'm skeptical of that. The rich would no longer have to deal with corporate taxes and payroll taxes and estate taxes, which affect them disproportionately, and they wouldn't have to pay tax lawyers. (Shaking off those leeches should boost economic output). I think we would have similar controls to the rich fleeing as we have now: You must pay US income tax regardless of where in the world you live, although you can deduct the tax you pay to your country of residence. Otherwise, you must renounce US citizenship and pay a fee. You could also (as we do with corporations who flee to tax havens) levy the tax when funds are repatriated to the US.

My intuition is that the rates wouldn't go up much at all if you consider that the payroll tax is already coming out of our paychecks (or earnings if you're the employer). So even if nominal income-tax rates increase because the payroll taxes have been folded into income tax, the effective rate hasn't changed, and we've saved on bureaucracy.

4. I'll start by saying that corporate taxes contribute only 7% of total federal tax revenues as it is, so even throwing that revenue in the ocean wouldn't cripple the country. Much of my reason for this topic is to see the justification for what seems to me like a strange construct: that some non-human enterprise whose purpose is to provide money to its people must pay taxes. It seems like a needless intermediary. To that end, money ends up getting taxed twice, at different rates, after passing through a distortionary alembic of all the accounting and legal and expatriation tricks that are afforded to a non-human entity. The issue that the "cucks," if you will, have with the corporations is really an issue with the people running the corporations, and the money that they are making. So if all the money that would have gotten taxed by a corporate tax instead goes to the rich, then fine--just tax the rich instead of the corporation. Of course, what I expect would happen is that the tax savings would be distributed mostly to the rich executives and share holders, with a lesser amount going to attract and retain employees, and then all beneficiaries will pay the tax on this extra money at the amount agreed upon by law. No one gets to hide it in convoluted avoidance schemes, and every pays what they owe.

1a2a3a: I don't think the the impact of tax deferrals is enough to move the needle on implementing an all-income-tax policy. Corporations who have piles of cash overseas to avoid taxes eventually cave and repatriate it and pay the tax (when the "tax holiday" they've hoped for doesn't come soon enough). If Bezos couldn't ever gain the possession of the tens of billions he has in Amazon stake, he wouldn't really be rich. But if someone wants to distribute their compensation over many years to keep them from hopping up a tax bracket, that's fine and not something I think is worth worrying too much about.

Ten5x: I was just using a wealth tax to convey the underlying philosophy that most people hold that the rich should be paying more. Whether a rich person who spends 100k on a car should be taxed more than a rich person who spends 100k on a vacation or service (non-tangible good) is a messy theoretical issue in terms of assessing wealth. That's why wealth taxes are so rare, but the idea that people with lots of wealth (however defined) should pay a higher percentage than those with little wealth is all I wanted to convey.

are these two things not essentially the same? most of the tax planning for private corporations in my country involves optimizing for deferral. deferral is more powerful than you seem to think. compounding a bigger number really is a huge advantage. depending on assumptions, after 10-15 years the tax holiday on tax-deferred capital is indefinite.

plus, that strategic distribution of compensation to target lower marginal rates sounds a lot like the thing in the first quote. hard to see how the tax-planning/compliance industry would go away when you incentive earning compensation at the corporate level.

1a2a3a, could you give an example of how someone could exploit the system that I'm suggesting in a way that they can't exploit the current system we have (of a 21% corporate tax rate)?

I don't really consider deferment to be a loophole, but I don't object strongly to you considering it a loophole.

But I made this thread to see what I was missing, and I admit I didn't put any consideration into the effects of deferment. So I'll imagine some artist under the income-tax-only policy:

The artist creates a painting and sells it for 1m. Just using current brackets, he would owe 320k in taxes, but he opts to incorporate and treats the money as corporate income, which is tax free. So he pays himself out 100k a year for ten years, each time paying tax of only 15.4k (again, using current brackets), thus paying only 154k as opposed to 320k, with the benefit of doing so over ten years and earning investment returns over that time.

But couldn't someone do that exact same thing today? Even if corporate profit is taxed at 21% (the current rate), you could just say your corporation is an investment firm and treat your investment purchases as costs, so I don't think you would have to pay any tax on the initial 1m because that is your basis.

i'm not overly familiar with the specifics of American tax, assuming you mean USA by we. any system that offers different, unintegrated tax treatments for otherwise similar income streams (e.g. investments held personally or in a corporation, income earned and taxed in an individual's/corporation's hands, etc.) will also offer tax arbitrage opportunities without having to go offshore.

your artist would be investing 1mm as a corporation versus $680k as an individual in year one. consider the difference in cumulative investment returns given larger up-front investments. with your proposed system and assuming a 5% realized return (for simplicity): the corporation would pay $0 tax on $50k return and the individual would pay their marginal tax rates on $34k return, leaving behind [amount less than $34k].

reinvest the return annually. run this for 10 years, taking into consideration tax paid on $100k/yr draws from the corporation by the individual, and tell me which situation is better for the artist in the end. deferral is a huge advantage.

assuming US capital gains taxation is halfway similar to Canadian cap gains taxation, this isn't true. you don't get to deduct your 1mm investment immediately against your ArtCo's income. that 1mm becomes the cost base for the investment, and is used to determine if there's a gain/loss for tax when you dispose of some/all of it.

1a2a3a, we don't disagree on the advantages of deferment. I'm not sure how to get around the problem, or whether it is a problem--it does incentivize investment, but to the detriment of consumer spending, and it's a strategy primarily for the wealthy. I think you're probably right that the scheme I illustrated above wouldn't be legal with the US's current system, although I'm not sure. (If Toyota sells some memorabilia for 1m, then invests it all in a new factory, I would assume they use the cost of the factory against the memorabilia gain and owe no tax. So if an artist has the buyer of his art give the money to his Artist Hedge Fund, which then invests all of it in stocks, it's conceivable the cost of the stocks could be used against the art gain and it would owe no tax. The capital gains made from that 1m would be a separate issue.)



I don't like that this deferment exploit would exist in an income-only national tax plan, since it's a hassle of a complication and not available to taxpayers living paycheck to paycheck. The rates could be adjusted to compensate, so the rich would have a higher rate with the idea that most would set up personal corporations and benefit from deferment, but that's not a very elegant solution. Do you have any ideas that would preserve the spirit of a simple plan that taxes solely on income?

this isn't how it works. again, not a US tax specialist, but under all tax codes i'm vaguely familiar with the new factory expenditures would be capitalized and depreciated, with the annual allowable depreciation making up the deductible expense for tax. the expenditure itself would not be an immediate deduction against income, past or present. some reading.

in the case of passive investments, the purchase itself would make up the cost base of the investment. it's not a deduction against income. you can't determine the amount of a capital gain in the future without a cost base to work with, and the cost base isn't deemed zero just because you wanted a deduction against some other income source when you made the investment.

don't take this the wrong way, but if you don't have a solid grasp of basic accounting concepts and why they work they way they do currently, tax reform thought experiments are going to be a waste of time and energy. being equipped to understand how things presently are is pretty important in determining what a given change would do.

read up about tax integration, and the history of various income tax regimes. most tax codes started out very simple, but became increasingly complex as taxpayers arranged their affairs to optimize for paying the minimum tax legally allowed, and governments used taxes to incentivize/disincentivize various things.

i'm not sure why you think taxing solely on income is desirable, or why you would be so set on this approach when you don't seem to understand what an expense is (which would be important to understand if you wanted to know what actually goes into calculating a taxpayer's taxable income under any system).

Ah yes, that famous trick that economists try to encourage for a healthy economy; saving.

I'm a little unclear what you are saying because it seemed contradictory, but heres how canada pays taxes..

https://www.fin.gc.ca/afr-rfa/2018/r...apport-eng.asp

scroll down and you see this

Revenues
Personal income tax 153.6 152.3 1.3 0.9
Corporate income tax 47.8 48.2 (0.4) (0.8)
Non-resident income tax 7.8 8.2 (0.3) (3.9)
Other taxes and duties 53.8 53.7 0.2 0.3
Employment Insurance premiums 21.1 20.6 0.6 2.7
Other revenues 29.4 26.8 2.6 8.9


so personal taxes are half of it, and its highly progressive. ignore ei premiums thats a fairly self contained program. other taxes and duties includes gst i think, surprised they didnt prvide gst asa single number ithought it was 30-40 bil...

anyway,

personal tax is mostly where its at. a big shift from the early 1900's when companies foot the bills, partly because it was hard to tax individuals then, and easier to tax companies. with limited resources and ability go after the big fish.

so i get what your saying but its almost there already. i see corporate tax going to close to zero, personal tax will pick up the burden and the higher earners will pay more. it doesnt mean the higher earners pay a higher rate...just that the government can pay for things by leaving the rich the same (but there are more of them paying the max rate) and raising minimum exemptions.

I see a bunch of nudges. theres no dramatic callout for a big change. its happening but within reason

i didnt address vats. gst is a vat i think or pretty close to it, but its tiny.

they work in a global environment. its the only way you get tax off goods shipped from another country. domestic companies have to pay income taxes and property. you cant tax the foreigners on this, so n vat works, and most companies with high vats do well on trade surpluses. I dont think its a good system but if we all agreed on a max vat then we all could set it at 10% then it would be great.

ill categorize 4 types of taxes - categories are arbitrary, mostly for discussion

preferential taxes - are those we charge on domestic preferred companies and people. we burden them with all the infrastructure and services. the term preferred is a dichotomy...as we will screw you

Neutral taxes - like a vat, captures more from foreign purchases

zero tax - the complete free ride. this is situations like netflix selling into canada with no sales tax, no proptery tax, no corporate tax, as long as they don't open an office....then they'd have to pay tax lol crazy.

non-preferential tax - we dont like your product or practices much so enjoy. tarrifs.

I could write a thesis on the tax burden of various industries. Take fortis. that chain to the consumer has sales tax, corp income taxes, corp property taxes, personal income taxes on tier employees....it goes on but that chain is collecting in excess of 50%.

now look at netflix. no corp tax, no property tax, no employees making money and tax off that. nothin. big fat ****ing zero.

for the dollar spent netflix float in and has zero tax burden, and a domestic gets screwed. this is beyond bad. this is whats wrong. international trade should be based on equal tax burden to local citizens

1a2a3a, thanks for the responses. I readily admit my knowledge of corporate tax and accounting may be too lacking for this to be worthwhile. But maybe you could indulge me in one last potential solution to the problem of artists incorporating to avoid taxes in a system with no corporate income tax: In lieu of corporate income tax, all corporations must give the government a 20% stake in the company. So for example, if this plan were enacted tomorrow, shares of Coca-Cola would jump because their tax rate has gone from 21% to zero, but then they would normalize upon realization that there was a 20% dilution as the government acquired 20% of the stock.

As for the artist who puts 1m into a corporation to avoid paying 320k in income tax, he'll find that over ten years withdrawing 100k a year (and still lowering his income bracket, which is a deferment that I'll allow), he has paid an additional 200k in taxes (the government's 20% of the corporate profit that he withdrew), bringing his total contributions to 354k after income taxes. I think this system of essentially integrating the tax collectors with the share holders would be a streamlined alternative to our current system of opposing them as an outside entity they seek to avoid. And needing accountants for "tax loss carryforwards" and tables of how long it takes office furniture to depreciate and other things I don't understand would be a thing of the past. Do you see an obvious flaw in this approach of simply appropriating a percentage of all corporations at a rate slightly less than their current tax rate to collect revenues via dividends?

I think you need to go start fresh from the beginning if you think having the government own 20% of all corporations is an answer to a problem.

this would leave existing investors fundamentally worse off. the price wouldn't stabilize the way you're envisioning, because the 20% dilution would apply to existing invested capital while the benefit of reduced corporate taxes would only apply to profits going forward.

would you be willing to pay the same amount for 20% less of something that returns 6% instead of 5% in the future? you just traded 20% in exchange for 1% of benefit a year. how long until we break even?

there are other problems that, loosely speaking, revolve around control and corporate governance. if the government has 20% of the equity of a large public corporation (like Coca-Cola), is it able to vote at shareholder meetings? who decides how it votes? can it attempt to influence who's on the board of directors? you've just created a broad bureaucratic class of government administrators whose job it is to try to run every public corporation that exists in your jurisdiction.

and if your response to that is to say "oh, fine. the government's shares won't have voting rights", how do you ensure that the board declares dividends on their share class?

all of this sets aside the question of what shares that won't (can't?) be traded are actually worth, and what that does to the value of other share holdings.

i don't think you understand the timing of tax events and why that matters, but putting this aside why would the artist ever take a dividend in this regime? he could refuse to declare dividends on any class of shares (i assume you don't intend to put voting control of every corporation into the government's hands as well?), and instead pay himself a wage or a management fee. this would cut the government out entirely. or he could sell $100k worth of his shares to a third party every year. services would probably pop up to facilitate this. either way, the government receives nothing for its ownership interest.

why would these things go away? would you also make sole proprietorship illegal? individuals would still have tax balances to track on their investments held personally, and unincorporated businesses would still want to depreciate their assets. the complexity of the tax code and its administration remains unchanged or even increases, now.

presumably you would put some anti-avoidance rules in place for all of the stuff i described above, and we're back to needing those annoying accountants and lawyers to decipher it all.

Mostly because while taxing income is ultimately what we care about, spending our income is ultimately what the government cares about. For example and leaving the fairness issue aside, imagine if we imposed a 20% flat-tax along with a balanced budget schema that only a 2/3 majority could override. So if politicians wanted to spend more on some program, they’d need to either get virtually the whole country to agree with a tax hike or they’d need to prioritize or economize existing government spend. Good luck with that; not just from the politicians side of things but all the interest groups lobbying for favors.

just commenting on the discussion. not directly responding


the JCB owns most of their etf market, and most of th JGB's. Canada has just started a home ownership program that the government owns 10% of your mortgage and its interest free. drastic measures and a sign of whats to come.

I think its a slam dunk that the government soon owns 20% of the market dependent on legalities. good idea? no comment. inevitable? maybe but cant be sure