Appropriate Taxation Methods

Let's assume, for simplicity, that for a successful government of any type to run, taxes must be assessed to the populace.

In what way would you assign those taxes? Currently America assesses taxes in a frighteningly complex manner that I honestly couldn't begin to explain. We've already had some talks about sin taxes (cigarettes, alcohol, prostitution) and people's general dislike of those, as well as people for and against flat taxes, progressive taxes, sales taxes, consumption taxes, environmental offset taxes, etc.

I'm asking because I can't really think of a simple, comprehensive, enforceable way to distribute the burden of running a government fairly among a nation.

Maybe we should go back to the Roman method of putting districts up for auction and having tax collectors bid on the right to collect taxes in those districts, and the tax collectors keep whatever they get above the auction price as their salary.

I'd need to think it through completely to find the inevitable failings of the scheme, but I'd start with:

Complete exemption of the first $XX,000 of income from taxation.
Flat Y% of all income above that.
No deductions/exclusions/credits.

EDIT: The exemption of the first $XX,000 would have to be a pretty low number too, by the way, to avoid the phenomena we're unfortunately already in where a large number of people pay zero in taxes but have the ability to vote taxes onto those who do pay.

possibly twice the poverty level? With the 2008 poverty rate being ~10,000.00 for one person, and ~14,000.00 for two people without kids, and 22,000 for a family of four (annual income), that'd put your minimum taxation a fraction of Obama's.

I think progressive taxation with no deductions would do the trick.

Well I guess I would allow expense deductions so companies don't pay a fraction of their revenue they pay a fraction of their income. The same for self employed individuals.

Kier wrote:

I think progressive taxation with no deductions would do the trick.

Well I guess I would allow expense deductions so companies don't pay a fraction of their revenue they pay a fraction of their income. The same for self employed individuals.

The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.

You and that notorious socialist Adam Smith... always on about your progressive taxation.

I don't think anyone here has said progressive taxation is socialist, or even argued against it. One thing it isn't is terribly simple though, which was the original question.

It's also not terribly practical the way it's being used at the moment, if it were we wouldn't need things like AMT to ensure that those at the higher tax brackets are actually paying a progressively higher portion. Of course that's largely due to the deduction side of things and not the progressiveness of the tax rates.

I am not a bit flat tax proponent. Just because it significantly benefits the rich.

I think we all realize taxes will go up, possibly to the levels they were in the 50's. We already have top 1 percent being taxed, what 80 percent right now?

This partly comes from readint The Men who Stare at Goats, but the military budget needs to come down, big time. That occupies a disproportinately gigantic part of our budget, for a nation at peace. Hell, it has been out of control since Korea.

KingGorilla wrote:

This partly comes from readint The Men who Stare at Goats, but the military budget needs to come down, big time. That occupies a disproportinately gigantic part of our budget, for a nation at peace. Hell, it has been out of control since Korea.

This.

I propose putting defense expenditure to the vote, in a similar way to how I'd be able to vote on school levies. Let's see the chickenhawks put their money where their beaks are.

[Disclosure of moot: I'm a filthy foreigner, and therefore am not trusted to vote on anything, let alone school levies]

Jonman wrote:
KingGorilla wrote:

This partly comes from readint The Men who Stare at Goats, but the military budget needs to come down, big time. That occupies a disproportinately gigantic part of our budget, for a nation at peace. Hell, it has been out of control since Korea.

This.

I propose putting defense expenditure to the vote, in a similar way to how I'd be able to vote on school levies. Let's see the chickenhawks put their money where their beaks are.

[Disclosure of moot: I'm a filthy foreigner, and therefore am not trusted to vote on anything, let alone school levies]

As much as the idea of this appeals to the democrat in me (not the Democrat), I'm not sure I'd trust us (the voting public) to not make a lot of dangerously stupid choices.

We'd also need to figure out what actually counts as defense spending. The federal government seems to have all sorts of creative fun with numbers when producing their pie graph depiciting where all the money goes ... they manage to claim defense spending only takes a measley %20 of the budget with their magic.

absurddoctor wrote:
Jonman wrote:
KingGorilla wrote:

This partly comes from readint The Men who Stare at Goats, but the military budget needs to come down, big time. That occupies a disproportinately gigantic part of our budget, for a nation at peace. Hell, it has been out of control since Korea.

This.

I propose putting defense expenditure to the vote, in a similar way to how I'd be able to vote on school levies. Let's see the chickenhawks put their money where their beaks are.

[Disclosure of moot: I'm a filthy foreigner, and therefore am not trusted to vote on anything, let alone school levies]

As much as the idea of this appeals to the democrat in me (not the Democrat), I'm not sure I'd trust us (the voting public) to not make a lot of dangerously stupid choices.

See California for the joy that is direct voting on issues by the general populace.

Badferret wrote:

See California for the joy that is direct voting on issues by the general populace. ;)

The Founding Fathers were not wrong when they thought the unwashed masses might need a buffer between themselves and important decisions.

I favor progressive taxation because the rich do certainly benefit more from government than the poor do.

I feel they should pay more because of it.

Kier wrote:

I favor progressive taxation because the rich do certainly benefit more from government than the poor do.

I feel they should pay more because of it.

I'm not against progressive taxation. I do wish we'd all acknowledge though that the rich DO pay more, regardless of whether we're looking at flat or progressive. A 10% slice of a kajillion bucks a year is a slightly larger payment than a 10% slice of $20,000 a year.

Not as much larger as if that 10% slice were upped to 35%, sure, and I'm not saying it shouldn't be a proportionally larger slice. But let's give credit where credit is due.

absurddoctor wrote:

As much as the idea of this appeals to the democrat in me (not the Democrat), I'm not sure I'd trust us (the voting public) to not make a lot of dangerously stupid choices.

We're already trusted to make a lot of dangerously stupid decisions. Hell, every time you get behind the wheel of your car, you're trusted to not make dangerously stupid decisions several times a minute.

And it's not like the voting populace hasn't already made any number of dangerously stupid choices at the ballot box. Sure, what you consider a dangerously stupid vote might differ from what I do, but we can probably both agree that there are some.

Kier wrote:

I favor progressive taxation because the rich do certainly benefit more from government than the poor do.

I feel they should pay more because of it.

This is honestly the first time I've heard this argument for why they should pay more, and I completely agree. Though I still see an argument being made where everyone gets to keep up to $X and anything over that could be taxed. Sort of a "tax of excess" sort of thing. Percentage wise, the rich would be paying more of their income toward taxes because more of it would be deemed excess.

Pinning down an exact number for the threshold would be a nightmare though... Heck, the cost of living varies fairly dramatically from urban to rural areas in the same county.

The Founding Fathers were not wrong when they thought the unwashed masses might need a buffer between themselves and important decisions.

As much as I disagree with people blindly following every word an "expert" says about a subject, I would also rather see people who study the value:dollar of government financial decisions calling some of the shots than random people who are easily swayed by whatever the celebrities are saying at the time.

Teneman wrote:

I'm not against progressive taxation. I do wish we'd all acknowledge though that the rich DO pay more, regardless of whether we're looking at flat or progressive.

Maybe I've oversimplifying massively, but the point of progressive taxation is that people pay according to their ability to pay.

The 10% of a kajillion bucks that the rich guys pays may be a much larger sum of money, but it's a sum that the rich guy can far easier afford to do without than the poor guy, who needs his pittance of 10% to feed his kids. After all, the rich guy still has nine-tenths of a kajillion bucks leftover to play with.

That's the argument that always bugs me so much to be perfectly honest. Not this part:

but it's a sum that the rich guy can far easier afford to do without than the poor guy, who needs his pittance of 10% to feed his kids

but this part:

After all, the rich guy still has nine-tenths of a kajillion bucks leftover to play with.

That's rationalization, pure and simple. That's making ourselves feel better about taking more from the guy. We don't get to decide when someone has enough and should give up the rest, and that's far too quickly what these arguments turn into when the Rich Bashing starts.

Should the rich guy pay more? Absolutely, and precisely because of the first portion of your argument. But we should acknowledge that he's paying more than his fair share, rather than turning around and telling ourselves that it's ok because he probably didn't need it anyway - after all WE can get by on only $xx,000, so he should be able to too, right?

Teneman wrote:

Should the rich guy pay more? Absolutely, and precisely because of the first portion of your argument. But we should acknowledge that he's paying more than his fair share, rather than turning around and telling ourselves that it's ok because he probably didn't need it anyway - after all WE can get by on only $xx,000, so he should be able to too, right?

I'm curious how we as individuals and collectively arrive at what is one's fair share though. I think we can all acknowledge that the rich derive benefits of living in our society in greater proportion than the poor. The very fact that they get to participate in the American economy in the first place is a function of both collective contribution and historical sacrifice. Warren Buffett himself acknowledged that his own vast wealth would not have been possible without the advantages inherent in the United States AND that he believes that that morally obligates him to contribute back at a greater rate than is currently required. The same is true of Bill Gates. Clearly they disagree that we have arrived at the proper "fair share" equation inre the rich and the poor.

What we have seen in the US as of the last 30 years is, with few notable exceptions, the very rich using their considerable economic power to purchase political power and then use that political power to augment and protect their economic interests. This is largely why we have an increasingly regressive tax system, a medieval education system, and a {ableist slur} health care system.

Teneman wrote:

I'm not against progressive taxation. I do wish we'd all acknowledge though that the rich DO pay more, regardless of whether we're looking at flat or progressive. A 10% slice of a kajillion bucks a year is a slightly larger payment than a 10% slice of $20,000 a year.

Not as much larger as if that 10% slice were upped to 35%, sure, and I'm not saying it shouldn't be a proportionally larger slice. But let's give credit where credit is due.

Wasn't this debunked right before the Presidential election? I'm fairly certain that Warren Buffet stated that he paid less in taxes than his receptionist and challenged other obscenely wealthy people to prove that they didn't. I think he even offered up $1M as a prize if they could and no one took him up on it.

I know the "rich" have a listed tax rate that is much higher but has anyone ever analyzed what that rate goes down to after their accountants are done with their return?

Teneman wrote:

That's rationalization, pure and simple. That's making ourselves feel better about taking more from the guy. We don't get to decide when someone has enough and should give up the rest, and that's far too quickly what these arguments turn into when the Rich Bashing starts.

Should the rich guy pay more? Absolutely, and precisely because of the first portion of your argument. But we should acknowledge that he's paying more than his fair share, rather than turning around and telling ourselves that it's ok because he probably didn't need it anyway - after all WE can get by on only $xx,000, so he should be able to too, right?

I hear what you're saying, and I pretty much agree with you. But when you've got governmental outgoings of X squajillion dollars, you've got to raise that from taxation somewhere. And when the choices are squeeze a bit more out of a lot of poor people, or squeeze a lot more out of a few rich people, the utilitarian solution is to tax the rich. Less pain (comparatively) to less people.

That said, you've nailed the crux of the matter where I've bolded it. What is his fair share? Does the rich guy owe a debt to the society that enables him to be or have gotten rich? Or is there a moral obligation on the rich to help support the poor, and if so, to what extent?

There's deeper questions leading off that, too - to what degree can the governemnt legislate morality?

Mmm, grey areas...

The very fact that they get to participate in the American economy in the first place is a function of both collective contribution and historical sacrifice.

With all due respect to Mr. Buffet I don't buy this part - simply because everybody is participating in the American economy. Those making a ton of money off of it aren't doing so because they got to participate while others didn't, they just participated better. Semantics though (I'm good at those lately) as I don't disagree with the underlying point.

As for HOW we arrive at a fair share, I seem to recall a West Wing episode that dealt with that. Josh or someone was explaining progressive taxation. If I recall correctly, he told the other person to pretend they were currently earning nothing. They further had no idea what they were going to earn in the next few years, but it could be anything from nothing to a huge amount. With all that in mind, they were asked to devise a tax schedule they thought was fair. I've always rather liked that theoretical approach. It's practical applicability of course is another argument altogether.

Your last point is one of the reasons I like the flat rate no deduction setup. It eliminates the ability for the chosen few to rig the system for their benefit through creative use of loopholes and deductions.

Bear wrote:

Wasn't this debunked right before the Presidential election? I'm fairly certain that Warren Buffet stated that he paid less in taxes than his receptionist and challenged other obscenely wealthy people to prove that they didn't. I think he even offered up $1M as a prize if they could and no one took him up on it.

I know the "rich" have a listed tax rate that is much higher but has anyone ever analyzed what that rate goes down to after their accountants are done with their return?

You're on the ultra, ultra rich side of the scale, and further are demonstrating the exact reason I like the no-deduction no-loophole setup.

Step down a notch though, to folks who make a fraction of what Buffet/Gates make, but would still be considered "rich" by most people. They do pay a huge tax burden, in real dollars, compared to folks on the lower end of the scale. That's the demographic I'm targeting when I say we need to give credit where credit is due.

KingGorilla wrote:

the military budget needs to come down, big time. That occupies a disproportinately gigantic part of our budget, for a nation at peace. Hell, it has been out of control since Korea.

The problem with this theory is that it neglects the fact that military hardware is one of (if not the) biggest exports the US has left. Add to that the huge number of relatively well paying jobs supported by the defense industry that are, by nature of the beast, generally domestic jobs that can not be outsourced.

Of course it isn't like I'm a filthy defense contractor or anything.

Jonman wrote:
Teneman wrote:

I'm not against progressive taxation. I do wish we'd all acknowledge though that the rich DO pay more, regardless of whether we're looking at flat or progressive.

Maybe I've oversimplifying massively, but the point of progressive taxation is that people pay according to their ability to pay.

The 10% of a kajillion bucks that the rich guys pays may be a much larger sum of money, but it's a sum that the rich guy can far easier afford to do without than the poor guy, who needs his pittance of 10% to feed his kids. After all, the rich guy still has nine-tenths of a kajillion bucks leftover to play with.

I don't like the argument that the rich CAN pay more so they SHOULD pay more.

I don't like it because of the precedent it sets, because I see it expanding beyond money and into other things. I don't mean practically but philosophically.

I very much like the argument that they receive more benefit and thus must pay more.

Teneman wrote:
Kier wrote:

I favor progressive taxation because the rich do certainly benefit more from government than the poor do.

I feel they should pay more because of it.

I'm not against progressive taxation. I do wish we'd all acknowledge though that the rich DO pay more, regardless of whether we're looking at flat or progressive. A 10% slice of a kajillion bucks a year is a slightly larger payment than a 10% slice of $20,000 a year.

Not as much larger as if that 10% slice were upped to 35%, sure, and I'm not saying it shouldn't be a proportionally larger slice. But let's give credit where credit is due.

I agree, by using percentages even a flat percentage we ensure the rich pay more than the poor. I just feel the the benefit the rich gain is an exponential reward versus a linear one. I do see how that could be open to debate however.

Teneman wrote:
The very fact that they get to participate in the American economy in the first place is a function of both collective contribution and historical sacrifice.

With all due respect to Mr. Buffet I don't buy this part - simply because everybody is participating in the American economy. Those making a ton of money off of it aren't doing so because they got to participate while others didn't, they just participated better. Semantics though (I'm good at those lately) as I don't disagree with the underlying point.

As for HOW we arrive at a fair share, I seem to recall a West Wing episode that dealt with that. Josh or someone was explaining progressive taxation. If I recall correctly, he told the other person to pretend they were currently earning nothing. They further had no idea what they were going to earn in the next few years, but it could be anything from nothing to a huge amount. With all that in mind, they were asked to devise a tax schedule they thought was fair. I've always rather liked that theoretical approach. It's practical applicability of course is another argument altogether.

Your last point is one of the reasons I like the flat rate no deduction setup. It eliminates the ability for the chosen few to rig the system for their benefit through creative use of loopholes and deductions.

That thought exercise is a pretty famous one, but one that really needs to begin before birth. Since a great deal of where you arrive economically is determined by the circumstances of your birth, one really needs to take it beyond just what you as an adult can bring in a few years.

If we were able to spin the karmic wheel, reshuffle the deck, and have you, me, and everyone else at GWJ fall into our birth situation entirely randomly again, how would that change your determination of what is and is not a fair distribution of tax burden and social services? If, for instance, there was a far greater chance of your being born to a crack-addicted, single welfare mother than for you to have two white, happily married, heterosexual, college graduate parents making in excess of $70k/year in their respective careers, how would this change your outlook on education funding and the war on drugs?

The "few years" approach is self centered in comparison.

Bear wrote:

Wasn't this debunked right before the Presidential election? I'm fairly certain that Warren Buffet stated that he paid less in taxes than his receptionist and challenged other obscenely wealthy people to prove that they didn't. I think he even offered up $1M as a prize if they could and no one took him up on it.

A lot of this is because capital gains (investment income) is taxed at a much lower rate than job income. And rich folks are generally living off their investments, not off a salary.

(Tangentially, I've never heard a compelling argument for why income shouldn't be income, all of it taxed at the same rate. Maybe someone could explain it to me?)

Teneman wrote:

Your last point is one of the reasons I like the flat rate no deduction setup. It eliminates the ability for the chosen few to rig the system for their benefit through creative use of loopholes and deductions.

But a flat rate doesn't help avoid deductions and loopholes--it makes your taxes slightly easier to calculate by hand, but most people just look up their salary in the table in any case. I'm with you on getting rid of deductions, though.

Kier wrote:

I don't like the argument that the rich CAN pay more so they SHOULD pay more.

I don't like it because of the precedent it sets, because I see it expanding beyond money and into other things. I don't mean practically but philosophically.

I very much like the argument that they receive more benefit and thus must pay more.

Your bolded portion is where my argument is coming from. I agree the rich receive a higher degree of benefit from society. I further agree, to answer Jon's question, that that does result in an obligation to contribute more back to the societal coffers.

My concern is that we too easily lose sight of the fact that the rich guy is contributing more and meeting that obligation. Once we lose sight of that the rich bashing begins.

Not that it will ever happen, but if we are able to implement a very simple tax code (sales tax, flat tax, whatever), a multi-billion dollar tax/accounting industry disappears overnight. Not that I'm a particularly huge fan (though my accountant is a functional alcoholic, so I trust him), but how will that tidal wave ride out?

I've had a much wider variation in income levels than most people, and let me tell you, the tax bills after six figures are absolutely staggering. It isn't until you get into seven or eight figures that you get the ability to hide income very effectively. (and no, I haven't been up that far, but I do have a pretty fair idea of how it works. )

Having been on both sides of the divide, I'm in favor of the flat tax with a pretty good-sized exemption at the bottom. I don't like sales taxes, because they're regressive. But we'd have to do a lot of redefinition of what 'income' is at the high end, or else the wealthy would pay even less in taxes than they do now.

Capital-L Libertarians like fees-for-service with almost no tax, but I don't personally like that approach at all.

Nevin73 wrote:

Not that it will ever happen, but if we are able to implement a very simple tax code (sales tax, flat tax, whatever), a multi-billion dollar tax/accounting industry disappears overnight. Not that I'm a particularly huge fan (though my accountant is a functional alcoholic, so I trust him), but how will that tidal wave ride out?

And that, my friend, is why it will never happen. I spent years working at Arthur Andersen, you should have seen the froth you could work up on a tax guy's mouth if you even mentioned the phrase "Flat Tax" around them.

Malor wrote:

I've had a much wider variation in income levels than most people, and let me tell you, the tax bills after six figures are absolutely staggering. It isn't until you get into seven or eight figures that you get the ability to hide income very effectively. (and no, I haven't been up that far, but I do have a pretty fair idea of how it works. )

Having been on both sides of the divide, I'm in favor of the flat tax with a pretty good-sized exemption at the bottom. I don't like sales taxes, because they're regressive. But we'd have to do a lot of redefinition of what 'income' is at the high end, or else the wealthy would pay even less in taxes than they do now.

Capital-L Libertarians like fees-for-service with almost no tax, but I don't personally like that approach at all.

Malor that's exactly where I'm coming from too, to the letter.