Two Plus Two Publishing LLC
Two Plus Two Publishing LLC
 

Go Back   Two Plus Two Poker Forums > >

Notices

Business, Finance, and Investing Making money, investing in markets, and running businesses

Reply
 
Thread Tools Display Modes
Old 05-19-2019, 03:01 PM   #1
Brass
stranger
 
Join Date: May 2019
Posts: 4
Why not switch to a broad-based income tax as the only federal revenue source?

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?
Brass is offline   Reply With Quote
Old 05-19-2019, 04:53 PM   #2
ToothSayer
Carpal \'Tunnel
 
ToothSayer's Avatar
 
Join Date: Jul 2015
Location: BFI Thought Leader
Posts: 8,473
Re: Why not switch to a broad-based income tax as the only federal revenue source?

Tell me how much the top $100K+ earners make each year, in aggregate, and you'll answer your own question.
ToothSayer is online now   Reply With Quote
Old 05-19-2019, 05:01 PM   #3
ToothSayer
Carpal \'Tunnel
 
ToothSayer's Avatar
 
Join Date: Jul 2015
Location: BFI Thought Leader
Posts: 8,473
Re: Why not switch to a broad-based income tax as the only federal revenue source?

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?
ToothSayer is online now   Reply With Quote
Old 05-19-2019, 09:26 PM   #4
1a2a3a
old hand
 
1a2a3a's Avatar
 
Join Date: Jan 2009
Location: western canada
Posts: 1,717
Re: Why not switch to a broad-based income tax as the only federal revenue source?

Quote:
(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.)
you see no benefit to tax deferral?
1a2a3a is offline   Reply With Quote
Old 05-19-2019, 10:08 PM   #5
Ten5x
centurion
 
Ten5x's Avatar
 
Join Date: Sep 2016
Posts: 159
Re: Why not switch to a broad-based income tax as the only federal revenue source?

Quote:
Originally Posted by Brass View Post
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.
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.
Ten5x is offline   Reply With Quote
Old 05-20-2019, 08:30 AM   #6
Brass
stranger
 
Join Date: May 2019
Posts: 4
Re: Why not switch to a broad-based income tax as the only federal revenue source?

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.
Brass is offline   Reply With Quote
Old 05-20-2019, 11:17 AM   #7
1a2a3a
old hand
 
1a2a3a's Avatar
 
Join Date: Jan 2009
Location: western canada
Posts: 1,717
Re: Why not switch to a broad-based income tax as the only federal revenue source?

Quote:
Also, the rich couldn't use lawyers and loopholes to avoid paying their set rate.
Quote:
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.
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 is offline   Reply With Quote
Old Yesterday, 08:39 AM   #8
Brass
stranger
 
Join Date: May 2019
Posts: 4
Re: Why not switch to a broad-based income tax as the only federal revenue source?

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.
Brass is offline   Reply With Quote
Old Yesterday, 11:57 AM   #9
1a2a3a
old hand
 
1a2a3a's Avatar
 
Join Date: Jan 2009
Location: western canada
Posts: 1,717
Re: Why not switch to a broad-based income tax as the only federal revenue source?

Quote:
Originally Posted by Brass View Post
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'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.

Quote:
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.
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.

Quote:
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.
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 is offline   Reply With Quote
Old Today, 09:41 AM   #10
Brass
stranger
 
Join Date: May 2019
Posts: 4
Re: Why not switch to a broad-based income tax as the only federal revenue source?

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.)

Spoiler:


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?
Brass is offline   Reply With Quote

Reply
      

Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off


Forum Jump


All times are GMT -4. The time now is 10:03 AM.


Powered by vBulletin®
Copyright ©2000 - 2019, Jelsoft Enterprises Ltd.
Copyright 2008-2017, Two Plus Two Interactive
 
 
Poker Players - Streaming Live Online