Too Reliant On The Few?

[Galloism]

That's true. We financed the Fed with tariffs.

Which we can no longer do. Because we signed a treaty.

Suddenly, the income tax, which has only been around for about a hundred years, is the only tax that can ever be put into place, ever, and cannot ever, ever, be replaced by any other tax, ever.

It can be replaced, supplemented, or supplanted.

However, in this world in which we are living, which is global, if we fail to tax income where it is earned, we're going to have the very real consequence of me using $200,000 in government services earning my million dollars, and me living in Aruba and paying no tax.

[Arkolon]

The US relies far too heavily on direct taxation.

Personal direct taxation should remain as progressive as possible, but we need to ensure that there's more of a balance towards indirect taxation to keep the tax base broad based. It'll be hard to get beyond 20% taxation as a % of GDP without more indirect taxation.
This is why I support a VAT. I want a generous and progressive welfare state, but income taxes on 1% of the population can't finance that alone.

Income tax at an effective, say, 0%, 5%, 15% rates for three different brackets coupled with a VAT on luxuries? Sure, bigger deficit for a small while, but such low taxes would definitely catch an economic boom two-three years after they're implemented.

[Arkolon]

Not if it's big enough. Try a $27,500 threshold with a 65% rebate rate. If you make $15,000 a year, your effective income would be $23,125, and if you are unemployed your effective income would be $17,875. Not enough to live comfortably, but surely enough for the bare necessities.

So, if I'm a married couple with two kids, and each of us make $15,000, and the kids make nothing, household income would be $82,000.

I think that's a higher tax burden than we can really bear. All things in moderation.

Wait, what? If you make $15,000, your income would be $23,125, and if your wife makes $15,000, her income would be $23,125, making a total household income of $46,250-- a 54.2% increase. How you got to $82,000 is beyond me.

I didn't say all disposable income is spent on luxuries. In fact, I only estimated that about 37% of disposable income was used on luxuries. The rest was all consumed without a dime used up as tax.


If you make a million dollars and put it all in Aruba, your money will be in Aruba, never mind what the tax rate in the US is. Tax havens will always be a problem if you're trying to make your state resemble the all-encompassing welfare state, but if you can't beat them, join them. Ireland is ideal for big American corporations because they pay a 12.5% tax over there compared to the US's +/- 35% tax. If the US set its tax rate to, say, 12% or 11%, do you think corporate tax inversions and first-class plane trips to Dublin would be as big a problem to the US budget as they are today? Of course not; the problem would be totally eliminated, and would bring countries around the world into the US as well. Not one single serious economist will ever even pretend that taxing for the sake of taxing is good for anyone.

I'm not talking about corporation evasion - I'm talking about personal wealth.

Here's the thing, if the million dollars was made here using the economic systems and protections provided by the United States government, it shouldn't be tax free because I bought my vacation home in Aruba instead. It should be taxed (generally) in the location to which the money was earned, as that's the place that the government protections protected those earnings.

Doesn't this assume that one-hundred percent of all luxury items are bought in Aruba-- which, I can tell you now, definitely isn't the case.

[Arkolon]

No, it doesn't. Effective taxation remains the same, and if you apply a VAT to only certain products (luxuries, mainly), then the tax system will be progressive. Poor people don't buy as many private jets as rich people do, I'm sure you realise that.

Rich people also buy private jets in other countries that don't have a VAT, and leave them registered there flying that country's flag.

Private jets bought in Aruba aren't the only items classified as "luxuries".

[Arkolon]

Suddenly, the income tax, which has only been around for about a hundred years, is the only tax that can ever be put into place, ever, and cannot ever, ever, be replaced by any other tax, ever.

It can be replaced, supplemented, or supplanted.

However, in this world in which we are living, which is global, if we fail to tax income where it is earned, we're going to have the very real consequence of me using $200,000 in government services earning my million dollars, and me living in Aruba and paying no tax.

What would be the point in living in Aruba if it would have a somewhat similar tax structure to what I propose for the United States?

[Galloism]

So, if I'm a married couple with two kids, and each of us make $15,000, and the kids make nothing, household income would be $82,000.

I think that's a higher tax burden than we can really bear. All things in moderation.

Wait, what? If you make $15,000, your income would be $23,125, and if your wife makes $15,000, her income would be $23,125, making a total household income of $46,250-- a 54.2% increase. How you got to $82,000 is beyond me.

The children make zero. As they have no income, and they are taxable citizens, they also get $17,875 each.

I'm not talking about corporation evasion - I'm talking about personal wealth.

Here's the thing, if the million dollars was made here using the economic systems and protections provided by the United States government, it shouldn't be tax free because I bought my vacation home in Aruba instead. It should be taxed (generally) in the location to which the money was earned, as that's the place that the government protections protected those earnings.

Doesn't this assume that one-hundred percent of all luxury items are bought in Aruba-- which, I can tell you now, definitely isn't the case.

Of course not - but the richer I am, the more likely more of my assets will be abroad.

This will result in an effectively regressive system.

[Galloism]

It can be replaced, supplemented, or supplanted.

However, in this world in which we are living, which is global, if we fail to tax income where it is earned, we're going to have the very real consequence of me using $200,000 in government services earning my million dollars, and me living in Aruba and paying no tax.

What would be the point in living in Aruba if it would have a somewhat similar tax structure to what I propose for the United States?

Aruba doesn't have a similar tax structure.

[Atlanticatia]

The US relies far too heavily on direct taxation.

Personal direct taxation should remain as progressive as possible, but we need to ensure that there's more of a balance towards indirect taxation to keep the tax base broad based. It'll be hard to get beyond 20% taxation as a % of GDP without more indirect taxation.
This is why I support a VAT. I want a generous and progressive welfare state, but income taxes on 1% of the population can't finance that alone.

Income tax at an effective, say, 0%, 5%, 15% rates for three different brackets coupled with a VAT on luxuries? Sure, bigger deficit for a small while, but such low taxes would definitely catch an economic boom two-three years after they're implemented.

I think those rates are too low. (Well, it also depends how much tax you're trying to raise. I'd be trying to raise, like 40% of GDP for a larger welfare state.)
I'd put income tax rates between 0 and 45% or 0 and 40%. But I'd make the top rate apply at a much lower income, around $150-$200k per year rather than $400-$450k. And I'd only have 3-4 tax rates: 0, 15, 30, 40/45.

There'd also be a federal VAT of 10%. I'd apply it to every item except rent and financial services to keep it simple. No exceptions or special rates for food, books, etc. A flat VAT rate on everything.
Then I'd pay the bottom fifth of the population a "VAT rebate" for poverty level essential spending. For example, if the poverty line is $12,000, and 40% of that goes towards essential non-housing goods, that's $4800 per year. So the bottom fifth of households would receive a rebate worth $480 each year per adult, with $120 per child. So the average household would get, say, $600 per year in VAT rebate.
A 10% VAT with no exceptions could raise close to $1 trillion, close to the amount the individual income tax raises right now. 0-rating essential goods would put a significant chunk into those revenues and distort the market a bit. Paying low-income households a 'VAT rebate' would keep things more progressive, and cost far less than 0-rating essential goods. (0-rating essentials would cost hundreds of billions, while paying a VAT rebate would cost about $15bn). Not to mention the fact that a one-off payment of $600 to an average low income household would increase consumption a lot.

Corporate tax rate of about 15-25%. (It'd really depend how states react to rate changes.)

Of course, all of these changes would be accompanied by an increase of the size of the welfare state, and a balanced budget every year.

[Galloism]

Rich people also buy private jets in other countries that don't have a VAT, and leave them registered there flying that country's flag.

Private jets bought in Aruba aren't the only items classified as "luxuries".

Of course not - I'm merely pointing out that the rich will be able to successfully evade the vast bulk of this tax merely by buying abroad.

With their money, that won't be a problem - like it will for the middle class.

[Arkolon]

Wait, what? If you make $15,000, your income would be $23,125, and if your wife makes $15,000, her income would be $23,125, making a total household income of $46,250-- a 54.2% increase. How you got to $82,000 is beyond me.

The children make zero. As they have no income, and they are taxable citizens, they also get $17,875 each.

The children are not categorically unemployed, though, and are supposedly under 18. If they are over 18, you're fuddling statistics because you're adding together the effective incomes of four people who are, in the fiscal case, functionally-strangers to one another.

Doesn't this assume that one-hundred percent of all luxury items are bought in Aruba-- which, I can tell you now, definitely isn't the case.

Of course not - but the richer I am, the more likely more of my assets will be abroad.

This will result in an effectively regressive system.

Hey, this reminds me, by the way, that I never explicitly espoused a 0% income tax-- only a flatter, less progressive one. So yes, I guess we agree. What now?

[Galloism]

The children make zero. As they have no income, and they are taxable citizens, they also get $17,875 each.

The children are not categorically unemployed, though, and are supposedly under 18. If they are over 18, you're fuddling statistics because you're adding together the effective incomes of four people who are, in the fiscal case, functionally-strangers to one another.

What if the children earn money? Do they have to pay tax?

We invented a whole section of the tax code to deal with children who make thousands of dollars in income (not as uncommon as you might think).

Doesn't this assume that one-hundred percent of all luxury items are bought in Aruba-- which, I can tell you now, definitely isn't the case.

Of course not - but the richer I am, the more likely more of my assets will be abroad.

This will result in an effectively regressive system.

Hey, this reminds me, by the way, that I never explicitly espoused a 0% income tax-- only a flatter, less progressive one. So yes, I guess we agree. What now?[/quote]
I would only support a flatter tax if we also raised the rate on capital gains.

[Arkolon]

What would be the point in living in Aruba if it would have a somewhat similar tax structure to what I propose for the United States?

Aruba doesn't have a similar tax structure.

Err, Internet's telling me those making above $300,000 a year in Aruba would pay ~55% in tax compared to the US' ~40%. Something I'm missing?

[Galloism]

Aruba doesn't have a similar tax structure.

Err, Internet's telling me those making above $300,000 a year in Aruba would pay ~55% in tax compared to the US' ~40%. Something I'm missing?

They charge it on income. They have a 1.5% sales tax.

So I can make my million dollars in your hypothetical US, using $200,000 in services and paying very little income tax, buy my $1,000,000 in luxuries in Aruba, and pay $1,500 to the wrong country.

[Arkolon]

The children are not categorically unemployed, though, and are supposedly under 18. If they are over 18, you're fuddling statistics because you're adding together the effective incomes of four people who are, in the fiscal case, functionally-strangers to one another.

What if the children earn money? Do they have to pay tax?

If it's through babysitting or lemonade stands (or even slinging Class A) then it's the black market, which is de facto not submitted to tax. The children under 18 are technically and legally dependent on their parents for the roof over their head and the food on their table (unless stated otherwise), so the 17-year-old with a job would not need the money from the NIT as they would not need to live on their own just yet-- they would not have to legally and financially independent.

We invented a whole section of the tax code to deal with children who make thousands of dollars in income (not as uncommon as you might think).

Mind sharing?

Hey, this reminds me, by the way, that I never explicitly espoused a 0% income tax-- only a flatter, less progressive one. So yes, I guess we agree. What now?

I would only support a flatter tax if we also raised the rate on capital gains.

I'm sorry, but income inequality is a useless metric to keep tracking when we have a guaranteed basic income system in place. If the unemployed are guaranteed $18k a year, and those making $5/hr (assuming we got rid of the archaic labour market price floor as well) 107% more ($10.34/hr), whether or not their boss is a millionaire or a billionaire doesn't affect anyone at all.

[Galloism]

What if the children earn money? Do they have to pay tax?

If it's through babysitting or lemonade stands (or even slinging Class A) then it's the black market, which is de facto not submitted to tax. The children under 18 are technically and legally dependent on their parents for the roof over their head and the food on their table (unless stated otherwise), so the 17-year-old with a job would not need the money from the NIT as they would not need to live on their own just yet-- they would not have to legally and financially independent.

So how are they taxed?

We invented a whole section of the tax code to deal with children who make thousands of dollars in income (not as uncommon as you might think).

Mind sharing?

Kiddie tax.

I would only support a flatter tax if we also raised the rate on capital gains.

I'm sorry, but income inequality is a useless metric to keep tracking when we have a guaranteed basic income system in place. If the unemployed are guaranteed $18k a year, and those making $5/hr (assuming we got rid of the archaic labour market price floor as well) 107% more ($10.34/hr), whether or not their boss is a millionaire or a billionaire doesn't affect anyone at all.

I'd be pretty happy with a guaranteed basic income, as long as it includes a (relatively) balanced budget.

[Arkolon]

Err, Internet's telling me those making above $300,000 a year in Aruba would pay ~55% in tax compared to the US' ~40%. Something I'm missing?

They charge it on income. They have a 1.5% sales tax.

So I can make my million dollars in your hypothetical US, using $200,000 in services and paying very little income tax, buy my $1,000,000 in luxuries in Aruba, and pay $1,500 to the wrong country.

If luxury-spending accounts for about 35% of your income, and your luxury-spending was $1,000,000, you'd make $2,860,000 a year, which would put you in the top income tax bracket in my hypothetical US, which is 15%, meaning you'd pay $429,000 in "very little income tax"-- giving back 115% more than you took in.

[Galloism]

They charge it on income. They have a 1.5% sales tax.

So I can make my million dollars in your hypothetical US, using $200,000 in services and paying very little income tax, buy my $1,000,000 in luxuries in Aruba, and pay $1,500 to the wrong country.

If luxury-spending accounts for about 35% of your income, and your luxury-spending was $1,000,000, you'd make $2,860,000 a year, which would put you in the top income tax bracket in my hypothetical US, which is 15%, meaning you'd pay $429,000 in "very little income tax"-- giving back 115% more than you took in.

Well, I included net earnings of $1,000,000 - presuming a 20% use/income ratio, the actual cost of services in that scenario would be $572,000. That means that you paid in 34.9% of what you received in benefit.

Despite being a millionaire.

[Atlanticatia]

If there was some sort of NIT or Universal Basic Income, I'd pay it to all residents, but I'd pay children a reduced rate of 50% of the full amount, which would go to parents. So basically like a child benefit.
Then, on the child's 18th birthday, they receive the full benefit and it goes to them.

If the universal basic income is $12,000, a family of 4 (2 adults+2 children) would receive a benefit of $36,000.

(A universal basic income of that size would cost, like, $3.4 trillion though in the US, if it was paid to all working-age adults, retirees, and a reduced rate for children)

[Arkolon]

If it's through babysitting or lemonade stands (or even slinging Class A) then it's the black market, which is de facto not submitted to tax. The children under 18 are technically and legally dependent on their parents for the roof over their head and the food on their table (unless stated otherwise), so the 17-year-old with a job would not need the money from the NIT as they would not need to live on their own just yet-- they would not have to legally and financially independent.

So how are they taxed?

Who? The kids? Well, I guess they aren't.

Mind sharing?

Kiddie tax.

A.. huh. Well, that can stay, can't it?

I'm sorry, but income inequality is a useless metric to keep tracking when we have a guaranteed basic income system in place. If the unemployed are guaranteed $18k a year, and those making $5/hr (assuming we got rid of the archaic labour market price floor as well) 107% more ($10.34/hr), whether or not their boss is a millionaire or a billionaire doesn't affect anyone at all.

I'd be pretty happy with a guaranteed basic income, as long as it includes a (relatively) balanced budget.

Of course. Who wouldn't?

[Galloism]

So how are they taxed?

Who? The kids? Well, I guess they aren't.

Kiddie tax.

A.. huh. Well, that can stay, can't it?

Sure - but if they're taxed on their income, why don't they receive a benefit for being low income?

I'd be pretty happy with a guaranteed basic income, as long as it includes a (relatively) balanced budget.

Of course. Who wouldn't?

Keep in mind though, your definition of basic income is woefully inadequate.

17k may be enough for a single guy in rural oklahoma, but it will not be anywhere near sufficient for a single mom of three in New York City.

[Arkolon]

If luxury-spending accounts for about 35% of your income, and your luxury-spending was $1,000,000, you'd make $2,860,000 a year, which would put you in the top income tax bracket in my hypothetical US, which is 15%, meaning you'd pay $429,000 in "very little income tax"-- giving back 115% more than you took in.

Well, I included net earnings of $1,000,000 - presuming a 20% use/income ratio, the actual cost of services in that scenario would be $572,000. That means that you paid in 34.9% of what you received in benefit.

Despite being a millionaire.

Take it up a notch to 20%, then? That's still considerably lower than what they pay now.

[Arkolon]

If there was some sort of NIT or Universal Basic Income, I'd pay it to all residents, but I'd pay children a reduced rate of 50% of the full amount, which would go to parents. So basically like a child benefit.
Then, on the child's 18th birthday, they receive the full benefit and it goes to them.

If the universal basic income is $12,000, a family of 4 (2 adults+2 children) would receive a benefit of $36,000.

(A universal basic income of that size would cost, like, $3.4 trillion though in the US, if it was paid to all working-age adults, retirees, and a reduced rate for children)

A NIT is comparably much better than a UBI, with it being much, much less expensive and actually incentivising work. I could probably throw some numbers together tomorrow.

[Atlanticatia]

If there was some sort of NIT or Universal Basic Income, I'd pay it to all residents, but I'd pay children a reduced rate of 50% of the full amount, which would go to parents. So basically like a child benefit.
Then, on the child's 18th birthday, they receive the full benefit and it goes to them.

If the universal basic income is $12,000, a family of 4 (2 adults+2 children) would receive a benefit of $36,000.

(A universal basic income of that size would cost, like, $3.4 trillion though in the US, if it was paid to all working-age adults, retirees, and a reduced rate for children)

A NIT is comparably much better than a UBI, with it being much, much less expensive and actually incentivising work. I could probably throw some numbers together tomorrow.

That's true. Or a universal basic income that's basically taxed away through progressive taxation. Achieves the same goal. Politically at least, a non-universal program would have trouble surviving. (In America, at least) Americans tend to hate a program that provides a benefit unless they're getting it, too. (see how Social Security has endured yet things like food stamps are having trouble staying afloat)

[Arkolon]

Who? The kids? Well, I guess they aren't.


A.. huh. Well, that can stay, can't it?

Sure - but if they're taxed on their income, why don't they receive a benefit for being low income?

Because they aren't supposed to be legally independent. Scratch that, then, don't tax kids.

Of course. Who wouldn't?

Keep in mind though, your definition of basic income is woefully inadequate.

17k may be enough for a single guy in rural oklahoma, but it will not be anywhere near sufficient for a single mom of three in New York City.

Vary it by state or, even better, jurisdiction, then. He who governs the least, etc.

[Galloism]

Sure - but if they're taxed on their income, why don't they receive a benefit for being low income?

Because they aren't supposed to be legally independent. Scratch that, then, don't tax kids.

Perfect! If I put my investments in my children's names, or, even better, an irrevocable trust that names them as beneficiary until they're 18, I can collect millions a year in investments and still get subsidized 17k per year by the government and pay no income tax.

Kiddie tax was invented for a reason, you know.

Keep in mind though, your definition of basic income is woefully inadequate.

17k may be enough for a single guy in rural oklahoma, but it will not be anywhere near sufficient for a single mom of three in New York City.

Vary it by state or, even better, jurisdiction, then. He who governs the least, etc.

And circumstance.

A single father of three can't survive on 17k anywhere in the nation.