Allegory wrote:
gbaji wrote:
Are you assuming this would only hurt rich people? Because you'd also be taxing 3% of your... everything.
Technically it hurts people who are drags on the economy, but yes it hurts the rich more.
No. It will most hurt those in the middle (arguably the same people who are hurt the most by our current tax plan, but that just seems to be a common factor with the Left's approach to taxation). The wealthier a person is, the higher the percentage of their net worth is tied up into value generating assets versus assets they merely own, but don't generate value over time (or may even depreciate, like cars, furniture, electronics, etc).
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Taxing 3% of my net worth would result in a significant tax decrease for me. And unless you're terrible at generating income on your assets, I suspect it'd result in a tax savings for you as well. For a median income of $52,000 one would need more than $208,000 in net worth before it would cost more in federal taxes (that's including the standard and personal deduction, it goes up much higher without those).
So less than the value of a small home where I live. Setting aside the near impossibility (and arguable privacy issues) of counting up and calculating the net worth of everything someone owns, assuming we could do this even semi-accurately, I suspect you are grossly underestimating just how much of a burden that would place on most people.
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The primary value of taxing net worth over net income is that it encourages efficient use of resources. People who acquire assets that don't generate value at punished while people who acquire assets that do generate value are rewarded.
Yes. Again, benefiting the rich far more than the poor and middle incomes. Also, I think you're missing an incentive effect. It does encourage acquiring assets that generate value, but that's only worth it if the value increases by 3% or more a year. For everything else, it has the incentive effect of simply
not acquiring anything of value at all. So instead of buying something that would provide you utility for years, you'll spend money on temporary things that just benefit you today, but don't result in something that can be taxed. So instead of buying new furniture for your home, go to Disneyland. Eat out rather than buy cooking equipment. Rent instead of own.
A tax on assets tends to punish those who don't yet have much assets or who are trying to accumulate them, while not hurting much those who already have them. You'd have a massively negative effect on many people's standard of living as a result of this by forcing them to make choices that actually harm them in the long run.
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It's entirely superior to taxing income in relation to incentives. They key problem is that it's difficult to objectively assess net worth, and difficult to verify. Income requires a transaction, which both parties involved generally have incentive to document accurately. No one else is directly involved in assessing my net worth, and I have reason to lie to the state were it taxed.
Yeah. It's pretty completely unworkable as a tax scheme. As I said earlier though, even if we could figure out a way to do this, I think it's a really horrible way to go. Most people's assets don't generate value over time. They are things they use to make their lives more comfortable. That's what you'd really be taxing. One could also argue, depending on how the system is set up, that this would also create an incentive towards personal debt (even more than already exists, and it's a problem today). If my credit card debt counts as negative worth, then I could totally see people using debt as an effective tax shelter. Again, something the rich could take advantage of far more than the poor though. And having some pretty significant negative economic side effects that I think those supporting the idea just haven't thought through.
I just think it's a terrible idea all the way around. In the list of different ways we could generate tax revenue, that really ought to be placed somewhere very near the bottom.
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gbaji wrote:
For the record, I'm talking just about changing the current income tax system to a flat tax (everyone pays the same percent on every dollar earned). I'll even toss in the idea of eliminating all deductions and tax credits as well. Why not? You know, if you think you're getting a raw deal on taxes or something. Let's see who's in favor of such a thing.
You've been suckered here. A flat tax by definition is entirely, well, flat. You're throwing deductions and tax credits in because when Republicans have floated the idea of a flat tax they tend to disingenuously remove those items. They're handing out free axes, but the head and the handle will cost extra.
Um... Ok. I'm talking about what I'd be ok with and seeing what ideas other people would have discounting it because you think some other group might not like it, or might want a different variation, kinda misses the point here. I'm saying what I'd be ok with and asking you what you think about that, or what you'd want instead.
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Anyway, sure I'd support it, but Republicans would never let a flat tax pass.
Great. Do you think the Democrats would let a flat tax pass either?
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gbaji wrote:
Capital gains should not be taxed at all. The capital was already taxed when I earned it the first time. But that's honestly beside the point here.
Wrong, it's new income. When you buy $100,000 worth of stock (using capital that has already been taxed) and sell it for $150,000, the extra $50,000 above your basis is new income and consequently taxed. This is entirely consistent with our general method of taxing income. If I spend 100 dollars worth of labor and parts to build a bike, which I then sell for $150, then $50 in net income I earned is taxed.
But should it? If we want to encourage people to take $100 worth of stuff and turn it into something worth $150, shouldn't we reward them with a lower (or even zero) tax rate? The argument for low or no taxes on capital gains versus ordinary income (wages) is that a wage earner does not take a financial risk. He spends X time working and gets paid Y dollars as compensation. The guy who invests money he's already earned (and already paid taxes on), could just buy something that benefits himself directly *or* he could invest it in a way that may in time become worth more than the original investment.
The issue isn't just about generating tax revenue, but what effect the method of tax revenue generation has on people's economic choices. Encouraging people to use their earnings in ways that create future economic growth rather than just personal consumption is probably something we should consider when constructing a tax system.
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gbaji wrote:
It's easy to shout for more government benefits when you're not the one footing the bill. I'm just curious how many people would be so on board with this sort of thing if they were actually paying their fair share.
It's easy to show the wealthy pay a greater percent of the nation's taxes than the percent of revenue they collect, but that's a fundamentally flawed measurement method.
Not in terms of motivations for those supporting more government benefits though. It's easy to see how someone who pays no net taxes at all (or even just very very little taxes) will have no reason *not* to support increased government benefits (doubly so if he might also be a recipient of those benefits). The benefits outweigh the costs. So yeah, I think this is a perfectly valid argument to make in this context. But to be fair, you're correct that there are other considerations than just why people might support or oppose something.
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It's flawed to compare direct income by someone making $10k a year and someone making $10 million a year. If we taxed businesses like we did people, airports would be bankrupt. We tax net income for businesses rather than income, because some industries have high proportional expenses.
The same metric should be applied to individuals, which is really what the standard deduction is about. There is a certain cost associated with me being able to work and generate revenue. I need to eat food and sleep somewhere. These costs are the same as expenses for businesses. Net income for me is what I earn beyond basic living costs.
If you remove the standard deduction by considering it as an expense to generate income rather than a arbitrary benefit, then it becomes much more evident how regressive the tax system is.
I totally get what you're saying. And I'm not even opposed to it. What I'm trying to get people to acknowledge is that our existing tax system is already vastly beneficial to those with low incomes. I bring it up solely because of the oft repeated claim that the rich aren't "paying their fair share". As I stated earlier, they are. They're paying their own share and like 20 other people's shares as well.
I understand the rationale for a progressive tax system. Heck, I'm not even totally opposed to it as a methodology. The problem I'm pointing out is that one of the side effects of such a system is that those who are at the lowest scale of the progression have the least reason *not* to support more government spending. Even if it's really wasteful spending, they aren't impacted much (or at all). As we tilt out tax structure more and more to benefit the bottom half of the economy, we make it harder to reign in spending, which burdens us all in more taxes. Which becomes a sort of feedback loop. Worse, the taxes are being borne by those people and businesses most likely to be creating jobs (not a lot of poor people hiring these days). So the irony is that while the person who is poor today will see it in his best interest to vote for higher taxes on the rich to pay for more benefits for him, he's actually hurting his own future because he increases the odds that he'll still be poor in the future (and still "need" those benefits he's taxing the rich to pay for).
It's a pretty vicious cycle IMO, and one I try to point out as often and as loudly as possible. It's not as simple as the basic math implies. While a flat tax would represent a higher net burden on those in the lower income brackets, it would also create a disincentive across all income levels towards higher spending, which in turn keeps tax burden for all people lower, and will over time promote greater job growth and an easier upward mobility path for everyone. So the folks in the lowest quintile would pay a higher percentage of their earnings, but the tipping point is lower as well (point at which the flat tax rate is lower than the progressive tax rate would be otherwise), and it easier for them to reach that economic point as well.
Which means more productivity and more rewards for that productivity. Which is a good thing for everyone. And if, along the way we have a leaner and more efficiently spending government? That's a huge plus as well.