Yet it doesn't, when you look at the nuts and bolts: it's not a matter of inefficiency of the tax itself; it stems from somewhere else.

Here's something that might appear counterintuitive: the 100 largest businesses weigh 14% of the tax's base, but return 19% of its effective yield. Very small businesses are those that drag that yield down, roughly a hundred thousand of them that benefit much more from a recurring tax credit implemented 8 years back than larger businesses do (we were getting close to tax revolt in 2012, when overall taxation passed 45% of our GDP).

But computing the calculations for that tax credit on top of the tax, and the handling of it on the state's end, for a hundred thousand plus small businesses, kept a lot of people busy and pocketing administrative costs that wouldn't have existed had the tax rate for the lower bracket had been lowered instead. That's where the inefficiency was: the tax credit. It's why it was replaced last year with a perennial lowering of the corporate tax rate, with a projected return of €16Bn to the state's finances as a result (and it's going to cost accountants considerable revenue, but that's another story).

 

I still find it baffling that the Statutory Maternity Pay in the UK, which is an absolute pittance after the first 6 weeks (flat sum of £151.20 pw), is subject to income tax and NI deductions. In comparison, maternity pay in Slovakia is 75% of your average gross salary in the year before the child's birth (capped at €1,548.70 pm) and is not subject to tax and social security deductions. Baffling.

 

I'm gonna dunk on Bernie here for a minute, but it's around him actually being political not bad.

To @Ender Sai 's point, the theoretical "Scandinavian model" of democratic socialism has high income taxation and low corporate taxation. I think the Scandinavian corporate tax rate caps out at 25% in Denmark and is typically closer to 20-22%. Meanwhile income tax rates are 55%+ except in Norway, where it's at US top-tier levels (38%). This is ideally the way it works in a society with a robust social safety net (of course there's a VAT there too which, nah)...

So if you plan to have these things, and you want to have progressive taxation and extreme rates on the individuals making lots of money (which you do), you also need to have a lower corporate tax rate so a) that drives innovation and b) keeps the money onshore.

Bernie knows this. I'm assuming most politicians who are progressive in the country know this. Which is why arguing that you're going to increase taxes, and implement a social safety net off the back of those taxes, and still raise the corporate tax rate back to 35% (it's currently 21% -- roughly in line where it should be, were everything else working correctly -- of course it was a dumb cut at the time given other factors)... it's a political stunt, not grounded in solid fiscal policy. Even Elizabeth Warren's plan, focused more on closing loopholes than anything else, was probably not the way to go but better than the alternatives.

 

Is there more of an answer as to what exactly in that equation is keeping the money onshore? Is that just that it's not economically beneficial to move the money elsewhere if corporate tax rates are sufficiently low, or is there some interplay with the income tax components?

 

Cool. A tax thread. Great. Lets see....

1) If we had a better, more efficient tax system then we could eliminate deductions and there'd be no more refunds or people owing. To me, thats better. Stimulus should be tax free and so should any Govt benefits. Its dumb to provide a benefit and the tax it. Just give less then....or something.

2) Ehhhh. Why not both and why do you assume that reduced taxation is so bad? Like, if we have more money in our paychecks isnt that also "extra income" that will likley be spent? Businesses will hire, people will buy stuff, etc. UBI is fine ONLY if its paid for by current programs and those go away to fund it. Otherwise, its just a flat handout and thats not really cool. Loan wipes? Nah - taxpayers ought to not be bailing out anyone or any industry. Thats not for this thread though. This idea of pay more as you earn more progressively reeks a bit of class envy to me. Who decides how much is too much? Who decides how that works? I know the tax-happy folks hate tis but if you remove the incentive to create wealth and do big things then we're all screwed. The number of jobs alone created by major capitalistic endeavors is enormous.

3) Hah - I could say the same thing about overly progressive tax supporters and the like. Get rid of them, LOL . Whats wrong with a VAT, consumption, or even flat? The rich pay more in every one of those scenarios and also lose the deductions and shelters that they use now. And again, who decides what they "can" pay? Why is it OK for you, me or anyone to determine that they have "enough stuff" and now have to hand most everythng after some arbitrary amount back to Washington?

 

Businesses had their taxes permanently reduced in 2017 by the Republicans, and virtually all their savings went to stock buy-backs, executive bonuses, and shareholder windfalls - not hiring, not R&D, and certainly not pay raises for the common workers.
Having good infrastructure, good education, a healthy populace - these all benefit everyone, especially businesses.
And government agencies are usually understaffed, underpaid, and underfunded.

 

In terms of stimulus, the best way is simply giving money -- not touching taxation. Longer term, a better taxation plan is fine (and good), but the single best thing you can do to stimulate the economy is simply give people money. Reducing taxation is trickle-down stimulation, and we know how that works with economics (spoiler alert: it doesn't). Going from 14% to 12% if you're making $10/hour is going to put something like $8 back into your paycheck every two weeks. Versus just giving someone $2000. I could spend $1600 and still save enough to even out what I saved in my paycheck by the end of the year.

And with flat tax, VAT, consumption tax, etc. and the rest of the regressive taxes -- it's all about a) day to day living and b) funding government/social services. Starting with the second one first, without a progressive tax code the government runs out of money, full stop. If you look at the distribution of income -- the top-5% make $100K or more. All of the particularly progressive tax raising methodologies suggest raising or having specific taxes on people in the tippy-top percentages of the distribution (top 1% at best). Combined with the wealth distribution and you see where the inequality forms -- you have the bottom-80% of persons in the United States holding 15.1% of the money. The bottom-90% holding 27.1%. Flat-taxing that distribution is insane.

Taking the first part second, let's assume for the moment that in order to live there's a minimum amount of money you have to spend in the United States (rent, food, transportation) -- let's even leave out everything else (healthcare, etc.). The average monthly rent in the United States is $1460. The average meal in the US is $4 (cooked at home). Average transportation is $29 per day (this is blended I assume to include both public transport and owning a car). That's $32,485, on average, to live in the United States. Hopefully the first thing you notice about this number is that you cannot live in the United States on minimum wage. The second thing I hope you'll note is that, at Federal minimum wage, you need to work 2.22 jobs to live... if you're not taxed. The third thing I hope you note is that you need to make $16.10/hr to live in the United States... if you're not taxed! Looking at this realistically, if you have a flat tax of 12%, you need to make about $37,000 to live in the United States. Let's take some very simplistic calculations...

So, at 12% tax if you make $37,000 / year, then you get to live, good job -- you have spent 100% of your income on living while being taxed 12% of your income. If you make $100,000, you have spent 37% of your income on living while being taxed 12%. If you make $270,710, you have spent 12% of your income on living while being taxed 12% -- good job, this is the break even point. It is much harder to live in the United States as a percentage of income with a regressive tax. The people who need the most help, get the least amount of relief. This is similar with a consumption tax -- the people who most need to spend a basic amount of money are the ones who get screwed the most. Because those are the people who are paying the larger percentage of their income as subsistence.

Again, classic picture. Equity vs. equality -- not everyone needs the same thing:

 

You, Sir, are a terrible person x)

 

Yes to both.

 

For those who didn't get their stimulus(es) yet:

This weekend, I used H&R Block (free version) to file my Federal taxes and there is a question asking if you received both stimulus payments. They ask you the amounts you received. The software reminds you as I had forgotten that the first one back in April 2020 was $1,200 per person and the most recent one in January 2021 was $600 per person. So if you were supposed to get $1,200 last April and you didn't, the $1,200 will get added into your refund amount.

The IRS issues most refunds within 21 days of your return being submitted. I know they started a little later this year than in years past, so it may take longer FYI.

 

OK - this is a good post. Well written, and I wont argue your numbers because they appear sound. I do question if $16.10 is really enough to live anywhere like near a big city though! But thats not important here. First, lets probably agree that wage stagnation is a big cause of this across the board. Thats separate from taxes so I dont want to de-rail anything but Ill admit that inflation and our paychecks aint syncing up. That aside:

I guess a flat tax could be argued against even though higher earners would pay more. Perhaps not enough. OK. Now though, why is a consumption tax not more attractive than what we have now? It could be a progressive consumption tax as to hit the bigger spenders more. That would happen naturally. You see how much money hihg earners spend. Bigger houses, bigger cars, more vacations, nice clothes, etc etc. They wont stop doing that. Of course, on major "luxury items" you can bump up the % if need be. I dunno, I just feel like income taxes nail those of us on payrolls the hardest since we have NO shelters or shady accountants to help us wiggle out of it.

Not sure if lower earners would get screwed by a consumption tax. Not if you properly had the rates setup so obvious basic needs like groceries, first car in household, and any other obvious non-luxury items stayed at a low rate. In other words, Id like to see a comparison of how much the $37K earner pays now versus what they'd pay in a consumption system. If we could make their tax bill lower and yet increase the tax collected on the big cats... to me thats a win. And dont forget, the maze of the IRS gets removed and so do the ultra-cheesey deductions - none of which can be used by that $37K a year guy. I just think it warrants more discussion before we discount it. Flat tax? Yeah, I guess that might not fly but some of the other proposals could work. IMO.

 

The problems with the IRS is that they are underfunded and understaffed. Like a lot of regulations, these "loopholes" exist for corporations and the wealthy because there's little to no enforcement of existing laws.
"Austerity" consumption taxes sounds like more conservative social engineering - defining what is "acceptable" for the poor to own, like one midwestern state passing the very important law to prevent poor people using food stamps to buy "steak".
Florida doesn't have a state income tax, just a consumption tax. Florida is also always broke. Florida is the only state in the nation that has a toll beltway around a major city. Currently, they are working hard to create a toll "super fast lane" on an interstate that is essentially a special lane for the wealthy.
And who would be the big loser from a consumption tax? Retirees. Their taxes would shoot up. And all those savings that are tax free? You get hit when you withdraw money.
And you can create complicated scenarios where this and that is exempted, but you're left with a tax code even more complicated than the current one... and much less tax revenue coming in.
(I would suggest those interested look into the pros and cons, but be aware that the Cato Institute and Herman Cain are both big fans)

 

The $35,000 to $40,000 income range, in 2018, averaged about $2,000 paid in taxes, or roughly 5-6% of their total income in federal income tax. The $1,000,000 to $1,500,000 income range, in 2018, averaged about $300,000 in taxes, or about 20-30% of their total income in federal income tax. That's a very big difference, and a flat tax means lower taxes for higher-incomes and higher taxes for lower-incomes.

As to consumption, not as large of an income gap, but this uses BLS statistics to compare households with an income of about $25,000, about $75,000, and about $190,000. Currently, the first is paying no federal income tax, the second is paying about 11% of income in federal income tax, and the third is paying 16% of income in federal income tax.

Just picking, say, 10% on all consumer spending, and with those three households (presuming that they will still put the same amount of money to spending, so they're buying less to offset the tax, and that the former federal income taxes paid are split up between savings and spending), we would find that under 10% on consumer spending the percent spent on federal income tax is that the lowest income household is now seeing 10% of their income taken in federal taxes, the middle income household is now seeing about 8% of their income in federal tax, and the highest income household is now seeing about 6% of their income in federal taxes.
The exact percentage to use would depend on what would match the revenues that would be needed.

So what a simple consumption tax has done is make it so that the more you make, the smaller the fraction of your income that goes to federal taxes. And to maintain revenues, you're increasing the taxes on lower income households in order to lower the taxes on higher income households.

How does that happen under what you're trying to propose? You're suggesting that we need a complicated system that can evaluate every item someone purchases and determine which tax rate it falls under as you've suggested luxury goods being handled differently, keeping track of someone's number of cars, etc.


What's being broadly ignored here is that higher income households have savings while lower income households do not, so the fraction of total income that a household spends is not flat with respect to income, it's inversely correlated.

 

Actually, California & New York are quite "broke" too, most of the time. It isnt just Florida and theres a reason people leave for lower tax states. Its because they want to keep more of their own money. Realize too that it is NOT just fat cats or Bezos-level people feeling these high-tax states. Anyone that works for a living stands to benefit by having less of their income taken from them. New York and Cali are some of the top places to get the hell out of for this very reason. Not sure what ya'll consider "rich" here but the number seems a little low to me in some of these conversations.

I disagree on it being more complicated. Of course we'd have to have some brackets and a system to protect savings & withdrawls from retirement. Actually, there would be no tax at all on your SS or retriement. Youd simply pay when you spend it. Thats the idea. So, people like my mother on SS and a little money from my Dad wouldnt pay a nickel in tax other than her wine and some other basics when she spends the money. At least thats the idea I had.

See - maybe you guys are right and Im just dumb. But... if the consumption tax system is setup properly then that household which has income of $190K is going to spend a lot more money overall than the household with an income of $25K or 75K. I mean - they're going to have a bigger house, more expensive cars & possibly more of them, nicer appliances, nicer clothes, go out to eat more and on and on. Or not? Im not arguing, just thinking of this might work is all. The $190K household will certainly buy more luxury goods which should be at a higher rate than basic stuff would be. They'd pay more that way too. We could probably shield lower incomes from some things too if need be. I know people hate hearing this but the bigger earners already pay a LOT of the taxes now!

And, quite frankly, that household earing $190K is not rich to me at all. Thats like two professionals working full time.

The key is to properly tax the right things at the right rates. So, food as in groceries & fresh/farm market goods should be the lowest. Cars under a certain amount will be taxed at a lower rate than more expensive cars. Clothing could be tricky, Ill admit. Zero taxes on tuition. Zero taxes on any medical costs. Dining out? Higher rate than groceries for sure. Private jets? Homes costing over XXXXX amount? All fair game for the highest rate. I dunno. I felt is was at least worth discussing.

 

Also remember, in re: NY (at least): we pay a crap ton more in taxes than benefits we get back, and states like KY are vice versa. Trueing up that calculation could even out NY's budget.

https://www.usnews.com/news/best-st...more-to-federal-government-than-they-get-back

 

California had a $15 billion surplus last year

You are, however, broadly advocating for taking more of the income from a lot of people working for a living. A consumption tax would be at the point of purchase, so unless you're expecting everyone to document every purchase they make in a year and report it to the government, it won't have a way of taking into account the income of the person in question. So the lower income ranges

You keep saying things like how you think it might work, but you don't have any numbers to back this up, and ignore the numbers that don't match your feeling.

The household that is making 190K has nearly 8x the income of the $25K household, but only about 4x the spending. So when you tax based on spending instead of based on income, you are shifting the tax burden to lower incomes and away from higher incomes. You have said that you're concerned about people who 'work for a living', but you want to do something that increases the taxes on most of them.

You have yet to be able to demonstrate, from the numbers, how you'd work this as a 'simple' tax that wouldn't be exploited that would do anything other than shift the tax burden to low-income households. That should be reason to give anyone pause as to if what they're saying actually makes sense.

They're by definition higher income. The trend holds going to even higher incomes. This puts the top 1% (I believe somewhere around half a million now) at saving nearly 40% of their income. That's a higher percentage than the $190,000 household. Targeting spending disproportionately taxes the people who can afford it the least.

 

It's social democracy. Someone needs to tell that senile old man it's not socialism.

 

Surplus last year or not, people and businesses are getting the hell out of California for plainly obvious reasons: Taxes, costs and an awful business environment. Its the same for my state. Tons of lifetime Yorkers are not retiring here or leaving before that and unlike what Cuomo says, it aint the weather! . So, while most people are fine with some taxation it doesnt take long to get old and people start getting tired of watching their earnings getting taken and sent to the Govt. Just something about that once you take ALL taxes into account, many working families(from $50K up to $400K) are working for "free" every year for several months. Your effective rate is like easily 50% or MORE when all taxes and "fees" are considered.

Cali's exodus info.
https://www.cnbc.com/2020/12/16/californias-growth-rate-at-record-low-as-more-people-leave.html

OK, maybe a consumption tax isnt going to work. So...what then? Just go after Bezos and Gates? More income taxes? Tread carefully - proposals that simply redistribute wealth into the giant blob that is the Federal Govt is not a good deal for taxpayers. At least local taxes stay mostly local. The federal thing is a problem, IMO.

 

It's a tautology, but not one that you've demonstrated means anything is better. It leaves major gaps since poverty is not evenly mixed throughout regions, it's concentrated in certain areas.

"Surplus last year or not" is a goalpost move. Cost is a plainly obvious reason, yes, but I take it you're not familiar with supply and demand. Real estate costs drive a huge amount of this, largely because there are concentrated areas many people want to be, and that puts a big demand on housing. One that can't really be easily addressed. It's the same reason that places like Nashville have seen rent go up by over 40% in ten years.

If it was an awful business environment, one would presume that California would see a much lower rate of new businesses than other states, and that's not the case. It's not the top state, but it's also not in the bottom half of states, which is what would be expect if it was an "awful business environment".

According to your article: "while it’s fashionable to blame California’s taxes and policies for its recent exodus, state officials say the more likely culprit is the pandemic and the migration patterns of the state’s large community of international immigrants."

Please provide your numbers on how you took that all into account. You said that when they're taken into account, it's well in excess of 50% going to taxes. Show how you're doing that and how you took all that into consideration. Include all your math that led you to your results.

 

What do posters "in the know" think about the wealth tax? Like, for instance, Warren's wealth tax which would tax those with over $50 million in wealth at 2% and those with over a billion in wealth at 3%.

As a concept, I certainly support it, but I've heard that implementing wealth taxes didn't work well in some European countries, and they scrapped them. I imagine that it'd be more difficult to implement there since avoiding it would be as easy as moving across the border to another country without a wealth tax, and that seems less of a problem here in the US. Also, Warren's plan imposes a 40% "exit rate" on Americans who renounce their citizenship to avoid paying it.

Yellen has said that a wealth tax would be too hard to implement, as multimillionaires could find ways to lowball the value of their assets, such as choosing appraisers who would purposefully undervalue their real estate holdings.

Still, it seems those with far more than $50 million in wealth could only get so far with this approach. While they might be able to lessen what they pay in wealth tax, they'd still pay something, which is clearly more than what they'd be paying if a wealth tax didn't exist. Also, polls show about half of all millionaires support a wealth tax and many billionaires do as well, so it seems many of the wealthy wouldn't be inclined to evade such a tax if they could.

Any thoughts on a wealth tax? Could it work in the US?

 

Wealth tax yes, please.

 

European countries with a wealth tax

Having a deficit is not the same thing. As much as conservatives are deeply concerned about deficits when they aren't in charge, that's a red herring. It's about cash flow and spending.
Florida's unemployment system is by far one of the worst in the nation. When the pandemic hit, the system couldn't handle the sudden influx of people - while other states faced with similar situations didn't have a fraction of the issues we did. The current Republican administration blames the past Republican administration for paying for a system that was built to fail - overlooking the multiple internal agency reviews warning them this was going to happen - but also the maximum benefits were 11 weeks instead of the 26 weeks that the majority of states has. The maximum amount has been fixed at $275 per week for decades. And yes, even with the emergency benefits, that matters - the Pandemic Emergency Unemployment Compensation is a percentage of the total funds you qualified for initially. Why? Because unemployment is paid for by employers - and employers have some of the lowest unemployment tax rates in the nation. At least large businesses - the burden is actually on small businesses. The last time this happened, a decade ago, the unemployment funds quickly depleted because again, taxes were so low. On Friday, a 200 page report was dropped by a 3rd party company hired by the state to investigate what happened and the predictable summary included this surprising revelation - more money needs to be spent on the unemployment system.
That's just a specific example of the general issue with state services in the state of Florida. All agencies are chronically understaffed, underfunded and underpaid, especially anything related to regulations and education. This is what I mean by being 'broke' - there's never any money to do anything. That's bad enough normally, but when there's emergencies of any kind, everything falls apart. Look what's going on now - Texas with their garbage electrical grid that collapsed, Mississippi with a city that had their entire water system break down. But taxes are low, right? Well, again, basing most of your state's income on sales tax means that - again - the low and middle class make up the burden of the costs. The 'keeping more of their money' is a dodge, as people are less likely to realize how much they are paying on state sales tax over the course of a year.
Oh, there's always the redistribution of wealth between the states. Who are the top states receiving federal money? New York? California? Nope, it's New Mexico, followed by Kentucky, Mississippi, and West Virginia. California is 41 out of 50. On average, "blue" states do better than "red" states. So, part of the 'low taxes' is being subsidized by the states that are contributing more.
The wealthy are coming to Florida because of 'low taxes'. The elderly are coming to Florida because they always have (although as I've already pointed out, a sales tax screws over the retired most). Businesses are coming to Florida because of the low taxes and the incredibly lax labor protections. But regular people? Wages are flat, the majority of jobs are low-paying, cost of living is skyrocketing (especially in the Miami area). Florida is a **** place to live and work for them.

 

The wealth tax makes no sense in practice and you'd do better to have less deductions on CGT crystalisation events, possibly even with a higher CGT rate for single asset value over a defined threshold.

Wealth is not zero sum, and it would be good if leftists took the time to understand this. The Scandinavian countries have the lowest income GINI scores in the world but really high levels of wealth inequality - having wealth is fine. Having wealth and not taking care of your citizens with their tax receipts is not.