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Senate Taxation: All I Ever Wanted (now discussing: relative tax burdens)

Discussion in 'Community' started by Lowbacca_1977, Feb 27, 2021.

  1. Lowbacca_1977

    Lowbacca_1977 Chosen One star 7

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    Jun 28, 2006
    In thinking there would be some interest in a taxation thread (and allowing scattered discussions to be centralized), I thought it was worth bringing this up in a single location, and start this with a particular element of taxation to get the ball rolling (I didn't find any vaguely recent focused threads on this).

    To draw on what is a pressing economic issue, we are now approaching roughly a year of the consequences of COVID hammering the US economy, and that includes an increase in roughly 8 million people now in poverty and an increase of about 7 million people receiving SNAP benefits. This is on top of concerns about the health of the economy and if those working low-paying jobs need more money to afford the cost of living.

    Addressing many of these concerns will likely require a discussion of taxation can play a role in the government response. One argument to be made is to lower taxes with the hope of helping those that are struggling, however I would contend that for many of those above, the amount they're currently paying in taxes isn't large enough to help them get above water if they got that money back.

    I would contend that taxation would play a key role in handling this, however. With reduced taxation being one approach to try to give people more money to afford the cost of living, and specific government programs being another (such as unemployment insurance, SNAP benefits, etc), a third approach is direct stimulus payments. One of the fastest ways to get support directly into people's hands would be to remove any means testing in issuing the support and instead increase taxation at higher incomes if needed to address concerns about the national debt.
    The importance of including taxation here would mean that it mitigates the risk of handing out money now. Those that are suffering will be filing their taxes with a low income anyway (either because they are in intrinsically low-paying positions or because they have lost employment because of COVID) and increasing yearly income tax payments under a progressive approach will serve to not only recoup the stimulus payments from those who didn't need the assistance but also go to funding the payments for those that really did need help.

    All of this comes back to the broader question of what role taxes play in helping people, either directly through tax cuts or indirectly associated with stimulus or welfare programs?
    (While I've framed this heavily in the context of the United States, anyone broadening this to include other countries is more than welcome)
     
    Last edited: Feb 27, 2021
  2. blackmyron

    blackmyron Chosen One star 6

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    Oct 29, 2005
    One of the biggest issues on taxation I have (mainly because it's directly related to my job) is that government benefits shouldn't be taxed. It defeats the entire purpose of the government aid in the first place if they're just going to take some of it back. Fortunately, most government aid is not, but one extremely important one is - unemployment. As I've mentioned on another thread, unemployment used to be untaxed, but conservatives felt that it would 'encourage people to stay on unemployment' if it wasn't taxed. Well, not really - that was justification, but it was and is always about trying to cripple programs they don't like.
     
  3. Lowbacca_1977

    Lowbacca_1977 Chosen One star 7

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    Jun 28, 2006
    While I can see some argument for not treating that income as entirely separate, that does seem like there should be a calculation of what people need, and then the relevant portion of government aid should then be supplemented with enough to cover taxes. It does make sense, for example, if someone spends 6 months working and then 6 months on unemployment, the taxes should be more linked to how much they made over the year and not acting as though they made no money for 6 months.

    I would agree that taxing it is likely used as a way to undercut it, since if it was just to keep things consistent, deciding to tax unemployment should've been coupled with increasing the payments to offset those taxes, imo.
     
  4. LostOnHoth

    LostOnHoth Chosen One star 5

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    Feb 15, 2000
    You don’t get tax levied on unemployment benefits back in your tax return? The unemployment benefits you receive in Australia are so low that it generally falls within the tax free income threshold which means that you get that tax money back at the end of the financial year. For some long term unemployed people they do this as a form of forced savings.
     
    Last edited: Feb 27, 2021
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  5. dp4m

    dp4m JCC Playoff Pick 'Em Winner, Also a Narc star 10 VIP - Game Winner

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    Nov 8, 2001
    So, few things.

    1) Income tax refunds should generally be taxed still (it's not taxed in the first place and there's a longer explanation). But government stimulus should absolutely be tax-free. This is also a theoretical problem with college loan forgiveness, but also somewhat "easily" solved.

    2) The best way to stimulate the economy is to give people money, not reduce taxation. Whether direct stimulus, UBI, loan forgiveness, etc. -- that will always be the single best way to stimulate the economy. Not only does it give people money to cover debts, it allows them to spend which directly goes into the local economy and helps businesses as well as people.

    3) The best way to fund social programs is progressive taxation. Anyone suggesting a flat tax, consumption tax, VAT, etc. needs to be fired into the sun (though, really that's too much work -- just fire them enough to make it 50.1% of the way -- let the sun do the rest of the work). There are many, many reasons and many, many studies why -- but the gist is the more you make, the more you should pay (and be able to pay), and not in a linear manner (i.e. flat tax).
     
  6. Lowbacca_1977

    Lowbacca_1977 Chosen One star 7

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    Jun 28, 2006
    Two points to that @dp4m

    I'm not sure I follow your "Income tax refunds should generally be taxed still", but you mentioned a longer explanation I'd be interested in.

    Your firing into the sun thing won't really work. It takes a lot of energy to actually reach the sun because there's a lot of angular momentum to be removed so you can't count on the sun doing the rest of the work. You really need to have extra work going into the equation the whole way in to keep adjusting the trajectory sufficiently
     
  7. dp4m

    dp4m JCC Playoff Pick 'Em Winner, Also a Narc star 10 VIP - Game Winner

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    Nov 8, 2001
    So, income tax refunds are based on money you've withheld for the government on your paycheck. But -- and this is primarily for state income tax refunds -- you're claiming a deduction on your state income tax paid (and this lowers your taxable income)... so if you don't pay income tax on that refund, you basically get off tax-free. Federal income tax gets into a little bit greyer area, but generally should not be taxable under any circumstances I can think of (they're only based on a formula of your post-pre-tax income, your withholding elections, and your theoretical tax bracket).
     
  8. Ender Sai

    Ender Sai Chosen One star 10

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    Feb 18, 2001
    Tax chat? I'm in.

    I think before you even get to this level you need to examine what constitutes an inefficient vs an efficient tax, and plan around that. The most commonly misused inefficient tax is company tax, because capital is quite mobile (and state taxes are a close second). The most efficient tax is personal income tax, with almost no deductions.

    In an ideal response to this crisis, you would look to raise income taxes on your top two-three quintiles, whilst bringing your company tax to as close to 20% as you can get. I know high-level that the US has a ridiculous deductions regime so that has to go - I remember a paper showing a surgeon and a person who lives off their asset income, both netting US$330k in income, would see the surgeon pay something like $40k more tax because of the deductions the investor can access. That's insanity, they need to go.

    If your income tax is marked by stimulus payments, then I do feel it should feed into assessable income unless it was post-tax monies by the government. Your example about 6mo working, 6mo on welfare is why, Lowbacca. But overall the net assessable income should be adjusted as a result. The main reason you'd do this the inefficiencies it would create to try and ring fence stimulus income vs primary and secondary income sources. But then again I am thinking that you could also offset the impacts from Covid by giving free access to medical but that's socialism, sorry.

    You know what also makes sense though? Having a designation for non-residency for tax purposes. America doesn't, which is why it has FATCA. America is bad at tax.
     
    Last edited: Feb 27, 2021
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  9. Lowbacca_1977

    Lowbacca_1977 Chosen One star 7

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    Jun 28, 2006
    Ah, you presume that health care would help when you forget a large portion of Americans have written off medical care in their expectations already.

    This part is in regards to the US's utterly bizarre thing of expecting Americans that don't live in the country to still pay taxes, correct? Or something else?

    In either case, I think there's a sufficient enough record to demonstrate that the US approach to taxes is frequently not about doing things that make sense.
     
  10. Ender Sai

    Ender Sai Chosen One star 10

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    Feb 18, 2001
    Yes. If I did a year in Europe or the US or wherever, the Australian Government would say "well you didn't earn here, didn't benefit from services here, paid taxes there, we're good."

    Americans, even if they get citizenship because they were born there to non-Americans who came home, still have to file with the IRS because America only makes stupid laws. I have cousins who have a US mum (sorry, "mom") who have never lived there, who are just giving up citizenship because of this rule.
     
  11. Lowbacca_1977

    Lowbacca_1977 Chosen One star 7

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    Jun 28, 2006
    Yeah, it's one of the bolder cash grabs of the American government.

    I've got a friend that now lives in Wollongong that I believe is now already part of the growing number of once-Americans living in Australia that have given up citizenship (he has lived in the US off and on over the years). And at least one couple that have stayed in the US rather than move out of the country over this (one of them is British, so they've been trying to figure out which country is in less of a tailspin for a few years now)
     
  12. Obi Anne

    Obi Anne Celebration Mistress of Ceremonies star 8 Staff Member Manager

    Registered:
    Nov 4, 1998
    I think this video from the BBC gave a pretty good picture of the Swedish view of taxes. Now it isn't quite as harmonic as in the video, it's definitely possible to fall through the cracks in the Swedish system, and there are issues where our taxes don't cover enough costs, but the general thing is that most Swedes don't mind paying taxes, because we see what we get from it, and it's also very easy.

    When Sweden decided to build up the welfare state this was one of the best things - they decided that even if you were rich you would get access to healthcare and child support, no matter your income.This made a lot of rich people also see the benefits of the system, instead of feeling that they only paid into it and gave their money to less deserving people. Also the taxes are simple, they are deducted from my pay, and then in the end of the year I only have to check that they had taken the right amount. Of course if you have a company or a lot of other incomes it's a bit more complicated, but for me it took me a full minute to go through my tax reports last year. They are usually so well calculated as well that in the end I think I got $100 back.

    Why the Swedes love doing something that Americans hate
     
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  13. Lordban

    Lordban Chosen One star 6

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    Nov 9, 2000
    The current British Prime Minister had to renounce his US citizenship to avoid paying taxes to the IRS. Imagine that, a foreign head of government could have been expected to pay taxes to the USA despite not making a cent there, and sued for not paying said taxes...
     
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  14. LAJ_FETT

    LAJ_FETT Tech Admin and Collecting/Lucasfilm Ltd Mod star 10 Staff Member Administrator

    Registered:
    May 25, 2002
    Prince Harry would be in the same boat if he eventually took US citizenship and then had to move back to Britain.
    On a personal note, I'm a US citizen and even though I'm not resident in the US (haven't been since the end of 1989) I still have to fill out US tax forms every year.
     
  15. Boba_Fett_2001

    Boba_Fett_2001 Chosen One star 8

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    Dec 11, 2000
    I'm sorry, this was all I could think of when I saw the thread.

    [​IMG]
     
  16. Ender Sai

    Ender Sai Chosen One star 10

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    Feb 18, 2001
    Yeah I'm surprised the kids who grew up loving TPM and its exciting talk of taxation aren't here, but then again, KPMG probably won't let them.
     
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  17. Darth Downunder

    Darth Downunder Chosen One star 6

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    Aug 5, 2001
    THE TAXATION OF TRADE ROUTES IS IN DISPUTE!!
     
  18. LostOnHoth

    LostOnHoth Chosen One star 5

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    Feb 15, 2000
    Yes, ownership of trade routes... in space...in dispute. Plausible.
     
  19. Lordban

    Lordban Chosen One star 6

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    Nov 9, 2000
    Amateurs study strategy; professionals study logistics.
     
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  20. Ender Sai

    Ender Sai Chosen One star 10

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    Feb 18, 2001
    I am actually surprised nobody's challenged my idea that company tax should be around 20%... I believe it, I'm not trolling, but I would have expected someone to push back on it.
     
    Last edited: Mar 1, 2021
  21. Lowbacca_1977

    Lowbacca_1977 Chosen One star 7

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    Jun 28, 2006
    Since you bring it up, sure, I'll ask about why that number.
     
  22. Ender Sai

    Ender Sai Chosen One star 10

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    Feb 18, 2001
    Oh gosh I'm glad you asked.

    Company tax is inefficient and will always promote capital flight. Right now we all know the story - companies offshore their profits to usually Ireland, but also the Channel Islands or the Bahamas, or even the Netherlands, because of the low company tax rate. They pay the lowest tax rate they can, and given companies will always want to lower their overheads there will always be a pull for it.

    It's also not illegal, and not always immoral. Especially if you loan a satellite office funds to establish an office in another country with a 5 year window to profitability, they'll be legitimately repaying that loan before their income is assessed. To audit the valid and legit from invalid and illegitimate uses of this functionality would establish a monster of a cottage industry and frankly PwC, KPMG, Deloitte and EY don't need the revenues.

    So if a company is doing the dodgy with Ireland, they're paying basically 15% tax + additional overheads for lawyers and accountants to do the bookkeeping that makes it all possible. 20% is basically the why bother amount; it's still in most cases a huge injection of cash into the tax receipt reserves, whilst also making it not worth the trouble of offshoring in most cases.

    20% is also 20% more than most US companies are paying in the first place...
     
  23. Lowbacca_1977

    Lowbacca_1977 Chosen One star 7

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    Jun 28, 2006
    So in that sense, it seems there's nothing about corporate tax being 20% that's unique to a crisis, it's just that it should happen anyway?
     
  24. Lordban

    Lordban Chosen One star 6

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    Nov 9, 2000
    The issue I have discussing a 20% corporate tax rate is you can't have that discussion in a vacuum. If I don't know how that taxation interacts with others, on what exactly it is applied, or what the rebates that exist are, I can't really tell how much that 20% corporate tax rate does.

    Case in point: here in France, in 2018, the corporate tax rate was in theory 33.3%, applicable to a total of net fiscal benefits of €292.8 Bn. It actually yielded €25.7Bn - or an effective tax rate of 8.8%.
     
    Last edited: Mar 1, 2021
  25. Ender Sai

    Ender Sai Chosen One star 10

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    Feb 18, 2001
    Yes but now's a good time to strike a new company tax rate when interest rates are low in the US and business is rebuilding.

    that should tell you your company tax rate is too high and it's a highly inefficient tax as a result.
     
    Last edited: Mar 1, 2021