How progressive should income tax be?

[Dak]

After watching a few documentaries, most notably "Capitalism: A Love Story" and "1 Percent", as well as having very conservative relatives, I have heard a lot about how either income tax should be raised or lowered (or even abolished) for the richest. I personally think that the highest it reached in the U.S in 1952 (~92%) is 3% too short, but I have heard people say that 5% is too high.

So, where should income tax fall for the richest, or at all for that matter?

 

[Master_Ghost_Knight]

30% for anyone over 500K$.

 

[Giliell]

That's not a question that can be easily answered by giving a simple number. Just saying X% is rather naive and belongs to the middle-ages when things were simple.

One question is what is considered income?
Ridiculously, in Germany only what you work for is subject to income tax, not income from investment. So if you work for 100 k/year you have to pay more taxes than a rich bugger who gets 100k from investment.

Another one is what is financed by taxes.
Is public healthcare financed via taxes? That means taxes must be higher than in a country where it isn't. What about other public services, what about colleges, childcare etc.?

And how do you view direct/income taxes vs indirect/VA taxes?
It's generally considered that direct taxes are more socially just than VAT for exapmle, because you can adjust them better an more easily. Also with higher income the consumption of goods is lower, investment is higher, so with VAT, a low-income household who has to spend 100% on consumption effectively pays more taxes than a high income houeshold.

What needs to be fought is this idea that taxes are something the state robs you off. This doesn't mean we don't need to talk about who has to pay how much and what it is spent on, but your first world country offers you a lot of benefits, from roads to schools to fire departments to regulations that protect you from unnecessary harm.

 

[Aught3]

That's not a question that can be easily answered by giving a simple number. Just saying X% is rather naive and belongs to the middle-ages when things were simple.

One question is what is considered income?
Ridiculously, in Germany only what you work for is subject to income tax, not income from investment. So if you work for 100 k/year you have to pay more taxes than a rich bugger who gets 100k from investment.

Another one is what is financed by taxes.
Is public healthcare financed via taxes? That means taxes must be higher than in a country where it isn't. What about other public services, what about colleges, childcare etc.?

And how do you view direct/income taxes vs indirect/VA taxes?
It's generally considered that direct taxes are more socially just than VAT for exapmle, because you can adjust them better an more easily. Also with higher income the consumption of goods is lower, investment is higher, so with VAT, a low-income household who has to spend 100% on consumption effectively pays more taxes than a high income houeshold.

What needs to be fought is this idea that taxes are something the state robs you off. This doesn't mean we don't need to talk about who has to pay how much and what it is spent on, but your first world country offers you a lot of benefits, from roads to schools to fire departments to regulations that protect you from unnecessary harm.

+1

"How long is a piece of string?" So many factors go into determining a tax rate that it's impossible to give a one size fits all answer. I don't think there is much of a difference between 92% and 95%.

I also agree that a capital gains tax is a good idea, that sales taxes are too regressive, and that referring to taxes as 'theft' is rhetorical BS. Agreement all around basically.

 

[Logic-Nanaki]

I gladly pay my taxes really. around 30% i believe it is. although its sad that so many rich folk get so upset when they feel like they are being robbed, that they flee the country getting Norwegian pay but pay no tax. but hey, we socialist commie bastards stick together anyways and pay so our hospital, education and museums are free for public. now if the state only removes a few dozens of the fees that is on EVERYTHING here or even uses it to fix the roads and stuff, perhaps even we can be like Sweden and stops complaining.

 

[Dean]

[. . .] perhaps even we can be like Sweden and stops complaining.

Perhaps so. I recall living in Sweden some time ago, on some coursework. The tax system over there is good, I think. Even if they do pay a great amount of tax, that's the whole point of tax. It gets things done. In fact, to be perfectly honest with you, I am struggling to see what the alternatvie was ever supposed to be...

 

[Logic-Nanaki]

to clarify a bit, here in Norway we have this awesome big large enormous oil-fund that keeps our nation rich, and sweden do not. and in spit of this difference in national income, Norwegian roads, hospitals, even goverment is covered in red tape and nothing gets done. the only thing it seems to be going on is adding more fees and taxes on products. but i mentioned the complaining, so I might be a bit biased on this.

 

[ohcac]

I have... alternative... views on taxation. Here are some of my thoughts:

and that referring to taxes as 'theft' is rhetorical BS. Agreement all around basically.

The assertion that taxation is theft is actually particularly interesting to consider within the context of property rights debates and political economy. Please offer more details of your viewpoint, because it seems to me that the identification of taxation as a form of theft is more consistent than differentiating the colloquial understanding of theft from taxation in an arbitrary manner. This leads immediately into discussions of the necessity of the state (as much of state funding is derived via taxation) in society. It is relatively easy to show that the consequences of tax evasion are not very nice, however, anti-statists misunderstand the role of societal consensus in defining property rights. Property rights to me is *descriptive* as opposed to *prescriptive*, and this means that if the general social consensus is that the entity called "the state" deserves your property, then you do not in effect "own" that property. However, I do not think the taxation as theft is as hollow or rhetorical of a paradigm as you suggest it to be. Most anti-statists argue from the perspective that although taxation is embedded in the *description* of the societal consensus on property rights, that it is still *destructive* economically (and sometimes ethically) usually starting from an Austrian perspective. Then the debate gets particularly delicate and muddled due to the gory details of economic analysis and the role of Austrian "praxeology" versus neo-Keynesian determinism. I am a minarchist statist because of foundational issues such as the free-rider problem as it applies especially to defense. Also, I think the Austrian theory of the fractional reserve business cycle *may be* incorrect.

but hey, we socialist commie bastards stick together anyways and pay so our hospital, education and museums are free for public.

These are the kind of statements I tend to disagree with. While the state may be an overall necessary entity for the preservation of liberties and for some services (defense), that these services in particular have to be provided by the state is silly. Let's address these three services:

1) Suggesting that a mandatory extraction of income should be used to keep museums open is so ridiculous that I don't think it warrants a rebuttal.
2) I would suggest that the quality of healthcare has more to do with the number of physicians than it does the extent to which it is socialized or made available. The reason that healthcare prices are so high is because medical boards have severely cut access to jobs in the medical field in the name of "quality". The AMA systematically decreased the number of medical schools as a clear barrier to entry and has frequently stated the goal of keeping the number of doctors per 100000 people static. The legislation-privileged Blue Cross/Blue Shield (covering half of all insured people in the 1950s) was a cost-explosion disaster from the get go, resulting the the Medicaid plans in the 60's to resolve the cost explostion problem that the legislation had created in the first place.

3) Now this third service makes me much angrier than the other two because I think it is pretty obvious that public education is an *inherent* failure in the way it is structured. I can see where one might disagree with me on the motives of the AMA or the causal relation between privileging legislation and high health care costs. I cannot see how a person of reasonably high intelligence can look at the public school system and say that it is a good thing, even in principle! There is an invisible cost to providing "free" compulsory education for everyone: it will be shitty! Indeed, it is.

 

[Aught3]

The assertion that taxation is theft is actually particularly interesting to consider within the context of property rights debates and political economy. Please offer more details of your viewpoint, because it seems to me that the identification of taxation as a form of theft is more consistent than differentiating the colloquial understanding of theft from taxation in an arbitrary manner. This leads immediately into discussions of the necessity of the state (as much of state funding is derived via taxation) in society. It is relatively easy to show that the consequences of tax evasion are not very nice, however, anti-statists misunderstand the role of societal consensus in defining property rights. Property rights to me is *descriptive* as opposed to *prescriptive*, and this means that if the general social consensus is that the entity called "the state" deserves your property, then you do not in effect "own" that property. However, I do not think the taxation as theft is as hollow or rhetorical of a paradigm as you suggest it to be. Most anti-statists argue from the perspective that although taxation is embedded in the *description* of the societal consensus on property rights, that it is still *destructive* economically (and sometimes ethically) usually starting from an Austrian perspective. Then the debate gets particularly delicate and muddled due to the gory details of economic analysis and the role of Austrian "praxeology" versus neo-Keynesian determinism. I am a minarchist statist because of foundational issues such as the free-rider problem as it applies especially to defense. Also, I think the Austrian theory of the fractional reserve business cycle *may be* incorrect.

Hi ohcac, I'm happy to have a conversation with you on these and related matters but I feel that the starting point is a bit strange and perhaps not very productive. You seem to be asking me to defend a denial of the 'taxes are theft' claim, but unfortunately - while I have denied it in this thread - the positive claim has not actually been made or supported by anyone. Given this, I think any justification I tried to make would run the risk of misrepresenting your position. I would suggest starting another thread on what ever you are interested in discussing and we will see where it goes. From what you've said I suspect our point of disagreement will be around the different schools of economic thought. You seem to cautiously embrace the Austrian style, but I think economics is an empirical field of inquiry and I tend to follow a more Keynesian approach. I've written a bit more about my way to view taxation here if you are interested, please note this blog post was not intended to be a thorough justification for taxation.

 

[ohcac]

Hi ohcac, I'm happy to have a conversation with you on these and related matters but I feel that the starting point is a bit strange and perhaps not very conductive. You seem to be asking me to defend a denial of the 'taxes are theft' claim, but unfortunately - while I have denied it in this thread - the positive claim has not actually been made or supported by anyone. Given this, I think any justification I tried to make would run the risk of misrepresenting your position. I would suggest starting another thread on what ever you are interested in discussing and we will see where it goes. From what you've said I suspect our point of disagreement will be around the different schools of economic thought. You seem to cautiously embrace the Austrian style, but I think economics is an empirical field of inquiry and I tend to follow a more Keynesian approach. I've written a bit more about my way to view taxation here if you are interested, please note this blog post was not intended to be a thorough justification for taxation.

Alrighty. I might start something up in the "philosophy" segment of the forums.

 

[ArthurWilborn]

Hey minarchist buddy!

1) Suggesting that a mandatory extraction of income should be used to keep museums open is so ridiculous that I don't think it warrants a rebuttal.

I don't know about this one. There's something to be said for collecting and preserving cultural artifacts. Humans aren't economic robots, we like having connections to our history and our society. Museums tend to be supported locally and they're pretty cheap (relatively speaking) to run. This is also something that just isn't duplicated by a private enterprise, since the focus tends to be on transfer and access is sharply limited.

2) I would suggest that the quality of healthcare has more to do with the number of physicians than it does the extent to which it is socialized or made available. The reason that healthcare prices are so high is because medical boards have severely cut access to jobs in the medical field in the name of "quality". The AMA systematically decreased the number of medical schools as a clear barrier to entry and has frequently stated the goal of keeping the number of doctors per 100000 people static. The legislation-privileged Blue Cross/Blue Shield (covering half of all insured people in the 1950s) was a cost-explosion disaster from the get go, resulting the the Medicaid plans in the 60's to resolve the cost explostion problem that the legislation had created in the first place.

I agree here.

3) Now this third service makes me much angrier than the other two because I think it is pretty obvious that public education is an *inherent* failure in the way it is structured. I can see where one might disagree with me on the motives of the AMA or the causal relation between privileging legislation and high health care costs. I cannot see how a person of reasonably high intelligence can look at the public school system and say that it is a good thing, even in principle! There is an invisible cost to providing "free" compulsory education for everyone: it will be shitty! Indeed, it is.

Public education is a blinding success when you compare it to what was true in most of European history - private religious schooling for the well-to-do only. Heck, there's even invisible benefits; being forced into a room with 30 people you aren't related to and being forced to get along tends to diminish the clannish effect you see causing problems in so many other cultures.

Now, I'll agree there's a heck of lot of room for reform. The unions need to be extracted - forcibly crushed - and some kind of incentive based program put into place. We could talk endlessly about this. However, I doubt you're going to get me to agree with the result you seem to be suggesting - private schooling for the well-to-do only.

 

[Aught3]

Alrighty. I might start something up in the "philosophy" segment of the forums.

We have a Business and Economics subforum that is woefully under-posted.

 

[Arcus]

Not quite "Capitalism" qualify as a documentary...
You have to back up a bit first and think about what a tax system is attempting to achieve - optimal allocation of a country's resources between the private and public sectors. Between this starting point and assuming an educated guess at a good income tax system has a number of steps which I will skip to my main point:
Tax systems need to be effective and efficient.

Effective taxes are seen as unfair as it is difficult to change your behavior to move around them, i.e. VAT, petrol tax, toll roads, property tax - they are virtually impossible to get away from and they are often largest and most despised revenue sources. Efficient taxes leaves room for the taxpayer to modify his normal behavior, make him "cheat" away from taxes, i.e. progressive income taxes, sugar tax, tobacco tax - they therefore have to be very low, very complex or very targeted.

You have to look at the marginal tax rate, the %age taxes earned on the last dollar. In some countries overtime is/was taxed at up to double of non-overtime taxes. People rushed home at 16:30 to avoid the crushing ~65% taxrate on OT. There are also differences in what services is offered by the government. Income tax in the US cannot be compared to income tax in Scandinavia. To compare apples to apples you would have to add up personal expenditure for a number of services that are free in Scandinavia, but is paid by the individual and/or company for i.e. healthcare and education to be comparable.

So making a few assumptions: A Scandinavian welfare system where healthcare, education, and a variety of social security programs are paid as taxes and not as insurance. To give some numbers to play with, let's say an average income is $50k. I would say 0% tax on the first 10k, 15% up to 50k, 20% up to 250k, and 35% over that. It sounds like a pretty fair system to me. The marginal tax rate should not exceed 80% of income. (This would be but a part in a much larger tax system).
----------
As a side note: A good example of a highly effective and inefficient tax was the 17-19th century Window Tax in Britain. A tax was levied per window in the building. It collected a lot of revenue until almost every window was bricked up. (It's where the term Daylight Robbery comes from.)

 

[devilsadvocate]

3) Now this third service makes me much angrier than the other two because I think it is pretty obvious that public education is an *inherent* failure in the way it is structured. I can see where one might disagree with me on the motives of the AMA or the causal relation between privileging legislation and high health care costs. I cannot see how a person of reasonably high intelligence can look at the public school system and say that it is a good thing, even in principle! There is an invisible cost to providing "free" compulsory education for everyone: it will be shitty! Indeed, it is.

Are you commenting here on the american public education, or public education universally, because it is hard to tell. If you feel public education fails universally from it's inherent structure rather than fails in some cases because of implementation, I would like to hear you comment on how this view holds up with facts like Finland consistently ranking at the top on PISA (program for international student assessment? Finland has exclusively public school system (universities and colleges are also public schools), cost per student year is considerably lower than, say the U.S, and pupils have fairly average school weeks (20 to 30 hours from 1st grade to high school).

 

[ImprobableJoe]

Here's an idea: a 90% estate tax over $10 million. A tax code that taxes investment income at the same rate as any other income. End all tax loopholes for corporations, and treat them like foreign companies subject to tariffs if they hide assets and profits overseas.

You'd be amazed at how simple the revenue problems are when you don't have the most profitable people and companies avoiding paying any taxes.

 

[Dean]

Here's an idea: a 90% estate tax over $10 million. A tax code that taxes investment income at the same rate as any other income. End all tax loopholes for corporations, and treat them like foreign companies subject to tariffs if they hide assets and profits overseas.

You'd be amazed at how simple the revenue problems are when you don't have the most profitable people and companies avoiding paying any taxes.

A.k.a, malicious corporations, of which there are many, far and wide.

My view is: I think that corporations can be useful. It's almost undeniable that we would simply be unable of enjoying many of the modern commodities that we consume today, without vast corporate entities. However, if it's possible to think of corporations in terms of them being "people" in a metaphorical sense, they tend towards psychopathic personality disorder, and need to be very carefully regulated...

I recommend this documentary:



" The Corporation, Canada's most successful documentary in history, is the winner of 26 international awards and 10 Audience Choice Awards including the 2004 Sundance Film Festival. The film charts the development of the corporation as a legal entity from its genesis to unprecedented legal protection stemming from creative interpretation of the Fourteenth Amendment to the United States Constitution, that is from its origins as an institution chartered by governments to carry out specific public functions, to the rise of the vast modern institutions entitled to some of the legal rights of a "person." One central theme of the documentary is an attempt to assess the "personality" of the corporate "person" by using diagnostic criteria from the DSM-IV; Robert Hare, a University of British Columbia Psychology Professor and FBI consultant, compares the modern, profit-driven corporation to that of a clinically diagnosed psychopath. "

So yeah,the need be taxed and such.

 

[ImprobableJoe]

A.k.a, malicious corporations, of which there are many, far and wide.

My view is: I think that corporations can be useful. It's almost undeniable that we would simply be unable of enjoying many of the modern commodities that we consume today, without vast corporate entities. However, if it's possible to think of corporations in terms of them being "people" in a metaphorical sense, they tend towards psychopathic personality disorder, and need to be very carefully regulated...

I recommend this documentary:*snip*

So yeah,the need be taxed and such.

Yeah, taxed and regulated too. Corporations are ultimately creations of societies, and should not be allowed to gain more power than the society that contains them. They are NOT people, they are amoral entities created to serve a goal that can be at odds with the goals of society at large. When the two conflict, corporations should lose every time.

 

[Dean]

As Chomsky pointed out: "A very special kind of person, designed to be only concerned with their stockholders."

 

[ImprobableJoe]

As Chomsky pointed out: "A very special kind of person, designed to be only concerned with their stockholders."

Which isn't a human being. Of course, sometimes I question the humanity of the free market cultists, so there you go.

 

[CplFerro]

50% on the first $10 million, and 100% on everything after that. If you earn a billion or more you get a medal.

Cpl Ferro