A question about unfair taxes

[Greg Davidson]

Let's take a hypothetical case for income/payroll taxes

• Federal (including social security) = 28.4%
• California (state and local) = 8.3%

Total tax burden is 36.7%

Add property taxes into the total and burden goes to 37.7%

Assume itemized deductions, but 4/5ths of that is state income/property taxes; 2% of income in charitable donations, minor mortgage interest deductions. 99.9% of their income is reported as normal income on W-2s, less than 0.1% of the income is from interest/dividends/ownership. Married couple with one dependent child - no other special considerations affecting tax burden.

Here is my question:

How high would the income have to be for you to consider that the relative tax burden on this couple is unfairly low compared to Americans with lower income?

If they had half a billion dollars in 2015 income, anyone who believes in some level of progressive taxation would probably find this unfair. How about half a million dollars in 2015 income - would that be unfair?  How about $100K? Where would you set the level?

 

[TheDrake]

Unlimited. A linear scaling is sufficient to contribute, after reaching a certain point of subsistence. I would tend to remove caps, like the current ones on Social Security and Medicare.

[Pyrtolin]

I think 10x median is a good inflection point for federal taxes. Too low for anyone above it, to high for anyone below it.

The state portion, since states actually need a funding source, seems okay for all income at or above over median, but too high for anyone below it.

[Pete at Home]

Sice the question is abour how i feel rather than viable policy, i would say depends how he earned the money.  If he got it through cannibal corporate practices, increasing efficiency by making fewer workers work longer hours for less pay, i get stingy at 10x median CITIZEN [including the unemployed]. If he got rich like the fictional Monsieu Madeleine (increasing hires and pay in a process that decreases overhead by decreasing use of hazardous lead) or even a henry Ford I (increasing jobs and salary while making a new device previously a rich man's toy affordable to the masses, i say 37% is no less than fair for [total number of full time employees] x [salary of least paid employee]

[Seriati]

Is all you're asking, what's the fair way to determine the total amount of a person's income paid as taxes?  Honestly, there is no "unfairness" from someone who has a high income paying a low tax rate, the "unfairness" only comes from excess taxes that cut into a person's ability to support themselves.  That's why regressive taxes are so unfair and why sin taxes are burden on the poor.  The opposite conclusion is some form of jealousy.

If you start with the premise that everyone should have a share of the tax burden, but recognize that any share on the poorest is a burden, you really should focus on what its fair to make the bottom end bear.  Once you get over a share of 20-25%, which means almost literally everyone is serving the governments needs one out of every 4 to 5 years, you've left the question you asked behind.  Anything more you apply is unfair and being to used to fund "services" that are little more than forcing every individual to work for redistributions to other individuals.

[DonaldD]

I don't think 'fairness' is the proper way of looking at it.

Factors affecting overall economic health would be important - that would include global, regional and local economies.
The ability of individuals to survive and thrive, and factors objectively related to health and well being are also important.
The reduction of permanent economic stratification should be a concern.

Particular taxation schemes can either work towards or against these ideas (sometimes even having a mixed result).  A particular % doesn't really mean anything.  Is the end result one that maximizes health, happiness, comfort of the totality of the population?

[Greg Davidson]

DonaldD, I agree with the abstract argument but I was more focusing on a concrete one. Right around now, people are figuring out how much they owe in taxes. Take your income taxes, add in payroll taxes (social security and medicare), and property taxes if you have them. 

Looking at our own burdens relative to this baseline set of numbers that I presented, would we feel these percentages were fair if, for example, the income was x10 median as Pyrtolin suggested (which would be $534,000 for 2015). 

[Greg Davidson]

By the way, Pyrotolin was nearly exactly right - those percentage tax rates are for someone earning about 10.6 times median income, or $561,000 per year.  I think that is too low relative to what is paid by those with lower income levels.

[Pyrtolin]

To that I fully agree. I'd go with 0% below it at the federal level, at least and something closer to 60-80% for every dollar above it, with all state and local taxes being 100% refundable to encourage states to take a share for themselves instead of letting it go into the federal shredder.

[Pyrtolin]

And, if we're talking purely financial income- profits not tied to wages or producing and selling goods and services, then I'd also assess 40% on every dollar over 2x median for total income on that revenue, including non-educational/health spending from trusts.

[Greg Davidson]

Okay, Pyr, you have gone well beyond me to the left. 0% income tax on the first $560,000 seems far too little to me

[Pyrtolin]

It seems to me that, up to that point, it's generally pretty easy to spend most of that over a reasonable buffer of savings, and you're not yet to the point that you're pushing up prices on limited essential resources such as land. It's only when you get past that point that we really need to put a strong sense of diminishing returns on immediate income over deferring it through productive reinvestment.

But even if you put something lower, all state/local taxes should be 100% refundable, so that the Federal tax represents the total you're paying on any dollar rather than adding to it. Localities and states actually need revenue, the federal government just needs to make consumption and productive reinvestment more attractive than hoarding or charging financial rent.

(And, as I qualified, that's just on wage/salary income. If you're not actually working for the money and producing something, then I lower the axe much lower. At a point where it's still perfectly possible to be comfortable, but  still discourages financial manipulation in comparison to value production.)

[Seriati]

Looking at our own burdens relative to this baseline set of numbers that I presented, would we feel these percentages were fair if, for example, the income was x10 median as Pyrtolin suggested (which would be $534,000 for 2015).

I still think the question is hopelessly muddled.  What does fair have to do with it?  Is it fair that anyone pays taxes for purely redistributive purposes?  On what basis is it fair to force one individual to work for another's benefit, how does this differ from slavery, which is clearly prohibited.

Is it fair that a person of little income contribute nothing in taxes to the common good?  Should everyone have a token contribution to make?

Is it fair that we allow states to impose incrediblely regressive taxes on sales and excessive taxes on necessary goods like gas, or even on the legal forms of sin?  On what basis do we think it's okay to force people to pay higher taxes because of their choices, while its not okay to bar them from making choices?  Can we expand the sin tax to other disfavored things?  Can a state tax pornography - before you answer, we could certainly construct the same kind of common good argument that we use for alcohol with the demonstrable impact on body image that is triggered.

How can anyone set a tax rate without considering what is the right rate of spending supported by those taxes (other than Pyr for obvious reasons)?  Taxes that have to be collected to support the common defense and infrastructure, are different than those collected for elective items (like the arts, research or education) and different again from those supporting redistribution policies.

So no amount of additional income makes the rates you indicated too low, they are always too high and should be lower at all income levels.  The federal government should be smaller and spend less, and the States should get their revenue primarily from progressive rather than regressive tax structures (but the total should still be less).  Special short term levies could be added where there is a legitimate need, but even there they should be limited and not available in every year or else we end up with "automatically reapproved emergency levies," and are back where we started.

[Pyrtolin]

"Fair" is,. more or less a fantasy concept, mostly used to justify selfishness. Federal taxes should be about maintaining economic health, not fairness. Someone who's poor or even someone who's only moderately wealthy, does more good by spending money than by paying it in taxes, so it's economically damaging to tax them. Someone who's extremely wealthy can do a large amount of damage (with no actual net benefit) by bidding up prices against other peopel who are similarly extremely wealthy. (If one ultra rich person pays another $1million for a parcel of land or $10million for it, there is no net change in the amount of land, however the rent they charge for use of that land will be 10x higher in the later case) In both cases they get the same amount of land, no change in actual wealth, but in the cases where taxes control the amount they spend, prices on everything else down-stream from that purchase are lower, benefitting everyone else and allowing for more overall production of wealth.

This holds true even if the other $9million there gets invested in producing more things so that it doesn't get taxed. In fact that's the more ideal situation than actually collecting the tax, and what the deduction structure should be set to encourage. Spend $10million making stuff for everyone? No taxes. Try to spend $10million jacking up everyone's rent? Lots of taxes. At the Federal level, that's really the only point of taxing in the first place, since state and local levels can take care of taxing for revenue and to encourage baseline monetary utility.

  The federal government should be smaller and spend less, and the States should get their revenue primarily from progressive rather than regressive tax structures (but the total should still be less).

That's why I suggest that state and local taxes be fully refundable. A progressive, fully refundable Federal tax would be an open invitation to states to jump in and tax on a progressive basis in line with their needs, while not changing the total rates at all, just choosing how much to salvage from the Federal shredder.

[Seriati]

Well, except that bidding up occurs because there is too much cash available compared to certain resources, a problem that your policies on generation of cash would make worse.  Face it, your ideals don't work at all if you leave anyone in control of disproportionate amounts of capital, so at some point you have to advocate taking away "excess savings" through tax or another mechanism.

  The federal government should be smaller and spend less, and the States should get their revenue primarily from progressive rather than regressive tax structures (but the total should still be less).

That's why I suggest that state and local taxes be fully refundable. A progressive, fully refundable Federal tax would be an open invitation to states to jump in and tax on a progressive basis in line with their needs, while not changing the total rates at all, just choosing how much to salvage from the Federal shredder.

I don't agree, the federal government needs revenue so fully refundable is a nonstarter, but we've had that discussion too many times.  Our whole economy, the world economy and federal monetary policy are all premised on revenue offsetting expenditures, notwithstanding the theory behind your arguments.  I specifically exempted you from my original comment for a reason.

In any event the overall tax rate should go down, not stay the same, but I do agree with more control at the local level.  There is no reason, for instance, that states should be held hostage by federal highway money, when the money is generated originally from taxation of the state's residents.  That should all be paid to the state directly from its citizens and the federal manipulation inherent in taxing and then withholding returning money should be ended.

[Pyrtolin]

Well, except that bidding up occurs because there is too much cash available compared to certain resources,

It occurs when it is, And there are some pockets where that's true, but on the whole our economy is cash starved as evidenced by involuntary unemployment being at a non-zero rate and private debt being excessively high to paper over the gap.

a problem that your policies on generation of cash would make worse.

My policies involve putting cash where it creates the most resources. Our current policies create _just as much_ but put it where it creates the least resources by only making available in the form of loans or credit. Plus my policy reduces the amount of cash that's generated just to pay the financial sector rent/private tax on making cash to fill the shortfall.

  Face it, your ideals don't work at all if you leave anyone in control of disproportionate amounts of capital, so at some point you have to advocate taking away "excess savings" through tax or another mechanism.

You don't need to tax savings themselves, just tax excessively rapid liquidation. I covered taht above when I suggested heave taxes on financial income over 2x median. Cash out a massive chunk of savings at once and a good section of it should disappear to prevent just such manipulation unless you spend it on increasing production, and thus can deduct it.

Our whole economy, the world economy and federal monetary policy are all premised on revenue offsetting expenditures, notwithstanding the theory behind your arguments.

Not since we adopted fiat currency. The myth is used to trick people into supporting bad policy, but our primary agents of monetary policy have been outright begging the federal government to run a large enough deficit to keep the economy healthy and pointing out that they're effectively paralyzed because of underspending. The only reason the myth persists is because it benefits the financial sector at the expense of the economy and because it gives the politicians who sell it a level to manipulate the electorate.

Bank lending or loan repayment/savings will automatically offset just about any fiscal increase we can make, it will just mean that government, not banks control the tax rates in proportion to the shift of debt from private accounts to public ones.

Sure it's possible that we can get to the point whee too much money is going in, but the Fed has much better control over that, and can warn us long before it even comes close be being a dire as out current shortfall is so that we can adjust tax and spending policies to account for it.