How to tax?

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How to tax?

Postby Tailsteak » Sat Apr 05, 2014 1:09 pm

There are five ways to tax a population.

Head tax: everyone living in a given area pays a certain amount per person.

Sales tax: A percentage is added to every transaction.

Income tax: A percentage is added to wages paid (note: from a certain perspective, this is the same thing as sales tax).

Toll: Pay whenever you actually want to use a government service (i.e. travel over a bridge or obtain a license).

Asset tax: Charge someone a certain penalty for property or other assets they're holding.

Let us assume you are creating a society from scratch, and you can only use one of these methods to tax your populace. Which one do you use? Is there another method I'm missing? What makes the most sense? What is "fairest"?
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Re: How to tax?

Postby Deepbluediver » Sat Apr 05, 2014 2:37 pm

I would choose the Income tax, but with the same flat percentage (say, 10%) for everyone, as opposed to a graduated system where some people pay a different percentage. And a much simpler tax code than we have in the U.S. (I'm not familiar with the details of tax law in other countries really work), mostly for fewer deductions and a streamlining of how to calculate income.

Head tax: Unless you society is very equitable in terms of assets and income, and/or has a very low cost to run it's government and associated services, you are likely to end up either collecting to much from the people on the bottom or not enough from the people at the top. It also feels sort of like it's punishing people for not being successful enough if they can't pay the tax.

Sales tax: My biggest issue with this is that it essentially raises the costs of doing business, any kind of business. So long as the tax is relatively small the impediment to economic activity is limited, but it's still there. It would probably be my second choice after Income Taxes though.

Toll: Even as a diehard capitalist and small-government libertarian, I recognize that the people who need the most government services are often the ones at the bottom of the ladder. Also, without drastically increasing the level of government interaction in many aspects of your economy I'm doubtful you could generate sufficient revenue unless, again, you had a very limited government.

Asset tax: This might work, but it gets VERY complicated, I think, if you are trying to make it your sole source of income generation, since once you get the simple stuff (property, vehicles, and financial instruments) out of the way, you exclude a large chunk of the populace. The biggest issue is that it requires people to pay money on something even if they aren't using that property (or other asset) to generate income. If they don't have sufficient other funds, then you might force them into a situation where they have to sell the property just to pay the tax on it.

Is there another method I'm missing?

Where you including the concept of a Value-Added Tax (VAT) in your definition of Sales tax? They are similar but the traditionally the exact calculations are different: https://tax.thomsonreuters.com/blog/one ... fferences/

In the U.S. Estate taxes are usually treated separately from income taxes. You could probably include them as part of that though, or as a transaction for the Sales tax heading.
I don't like estate taxes because in most cases, I see it as double-taxing. Either the property was taxed when it came into my possession, of the money was taxed as income, and now it's being taxed again when I want to transfer it to my heirs.

There's also Capital Gains tax, which is based on the appreciation of certain assets, usually stock. For example, if I own $50,000 worth of a stock, and it goes up in value to $100,000, then I pay tax as if I had earned $50,000 worth of income, even if I haven't sold the stock yet. I particularly dislike this one because usually you don't get the money back if the value of the stock goes back down before you sell it. In some places you can carry the loss forward and apply it as a credit against other things, but in the U.S. that amount caps out at a mere $3,000, because it hasn't be adjusted since the early 80's.
There may be other types of taxes for complex financial transactions I don't know about; on the whole I'd say they most likely wouldn't generate sufficient income for the hypothetical economy though.


Did you think the ask this question because it's tax-season (due April 15th!) in the U.S.? Part of the reason I can give such a detailed answer is that I've been talking about this with my dad a lot recently.
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Re: How to tax?

Postby snowyowl » Sat Apr 05, 2014 2:56 pm

Head tax is the easiest to organise and the least prone to tax evasion, but disproportionately benefits the rich. It's a bad idea - my ideal society might actually have a negative head tax. That is, every person gets a small stipend from the government. Then the poor don't have to jump through elaborate bureaucratic hoops to prove that they qualify for welfare.

Sales tax and income tax are more proportionate. I think income tax is better, because the taxation rate can be adjusted based on income: those with low incomes pay no tax, those with medium incomes pay e.g. 10%, and those with high incomes pay e.g. 50%. Sales tax is just a blanket 19% across the board, which again benefits the rich. Although they do raise the question of what is considered "income" or "sales". Some people can get away with company cars and company housing (provided by companies that they effectively own), to bring their "income" down without giving up the accompanying lifestyle. You can more easily achieve that with expensive accountants, so annoyingly the effective taxes are lower for the extremely rich than for the mildly rich. Still, it works well on the poor end of the spectrum, so I'll stick with it.

Tolls are interesting for the implication that you only pay for the bits of society you're actually using. If you live off the grid and don't ask for anything from the government, you don't have to pay them anything. I don't think this would be a major part of my ideal society, because (slippery slope argument warning) I don't want the fire department refusing to put someone's house out if they missed a payment. But it's a good guiding principle for some services, so the government can see how much they're being used and communicate "This motorway is necessary, but expensive, so try not to use it more than you have to". It's also good for things like electricity or water or Internet access, which the government requires be available to everyone but does not require be unlimited. Incidentally, government-run Internet access might be worth a try.

Asset tax is better for corporations than for people. Publicly traded corporations are already required by their shareholders to keep a running tally of their assets, it's not a huge request to have those books sent to the government too. But for people, it's too easy to hide your cash under the mattress or in a secret Swiss bank account, and it's hard to get a fair valuation of things like houses. On the bright side, asset tax forces you to actually spend your money lest you lose it, which is apparently important to the economy. And income tax/sales tax push in the opposite direction, which is bad. So I'd have some asset taxes, too.

You left out capital-gains tax - when you buy something and then sell it within a certain timeframe, you pay tax on the difference. That impacts buying and selling things like houses and companies more than it impacts buying and selling groceries and petrol. I'll put a bit of that in my ideal society.
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Re: How to tax?

Postby Deepbluediver » Sat Apr 05, 2014 3:09 pm

snowyowl wrote:Some people can get away with company cars and company housing (provided by companies that they effectively own), to bring their "income" down without giving up the accompanying lifestyle.

In the U.S. at least the IRS will come after you for tax-evasion if they think that's what you are doing. Off the top of my head, I vaguely recall reading that 90% of the use of something had to be directly related to your business for it to qualify as a tax write-off.

You can more easily achieve that with expensive accountants, so annoyingly the effective taxes are lower for the extremely rich than for the mildly rich. Still, it works well on the poor end of the spectrum, so I'll stick with it.

IMO one of the biggest causes of that is the tax-code itself, which is just ridiculously complicated. The more rules you have, the more loopholes you have, which is why I stipulated simplifying it as a condition of my flat income tax.


Also, something else occurred to me- what are your thoughts on corporate income taxes?
Personally, I'm against them. The money will either be paid out to employs as salary (and taxed as income) or to the investors as dividends (and taxed as income) or reinvested back into the company to grow it larger and generate more income via the first two somewhere down the line.
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Re: How to tax?

Postby snowyowl » Sat Apr 05, 2014 4:05 pm

Deepbluediver wrote:Personally, I'm against them. The money will either be paid out to employs as salary (and taxed as income) or to the investors as dividends (and taxed as income) or reinvested back into the company to grow it larger and generate more income via the first two somewhere down the line.

I don't know enough about corporate taxes to comment. Why is double-dipping like this a bad thing? Taxes kick in every time money changes hands, so if money changes hands twice (once going into the company and once coming out), there's no reason it couldn't be taxed twice. The question to ask is, who ends up with more money as a result of the tax and who ends up with less, and is this a desirable state of affairs?
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Re: How to tax?

Postby RyukaTana » Sat Apr 05, 2014 5:19 pm

I'm an anarchist... So, ideally, no taxes.

If I'm building a society from scratch, that depends on what 'from scratch' means. Does it mean, utilizing the existing human population? Am I building it from literally nothing? Can I pick and choose the people who live in this society? If so, it'll be communal, and people will be hand-picked to join it. If I had to include the general population, I'd build a hedonistic society that's doomed to crumble and fail and have fun until it does.

Now, if we're talking rebuilding just the tax code of America as it is, I'd stick with a percentage-based income tax that is weighted more heavily against the wealthy, coupled with much more oversight in how corporations are run.
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Re: How to tax?

Postby Deepbluediver » Sat Apr 05, 2014 8:11 pm

snowyowl wrote:I don't know enough about corporate taxes to comment. Why is double-dipping like this a bad thing? Taxes kick in every time money changes hands, so if money changes hands twice (once going into the company and once coming out), there's no reason it couldn't be taxed twice. The question to ask is, who ends up with more money as a result of the tax and who ends up with less, and is this a desirable state of affairs?

That's not the sort of thing I would term "double-dipping", it's just an impediment on economic growth. Also, it's linked to a whole bunch of other issues.

For example, there was recently a case that the supreme court decided which basically removed a lot of the restrictions on political donations from corporate entities. To boil down a lot of it, the final verdict was basically:

1) Political donations are the equivalent of freedom of speech...
2) ...for which everyone should be playing by the same rules (for example, unions where not as limited, despite being highly politicized)...
3)...and we are going to ere on the side of less restrictions rather than more.

Now, even as a politically-libertarian leaning person who can admit that this sort of thing isn't specifically prohibited in the constitution, I feel that it has a heaping pile of potentially dangerous, dubious, and undesirable implications. Personally I would have preferred that they rule that corporations AND OTHER ORGANIZATIONS have neither the same freedoms nor the same responsibilities as individuals. I.E. they shouldn't pay taxes, but neither can you direct corporate funds to political causes, even if you could make the argument that technically buying political favor was good for business, and therefor fulfilling your obligations as CEO.

Which brings us back to why I don't like the idea of corporations having income-taxes. They don't have income; they have revenue, which the corporation is already obligated by law to pay out or utilize in some fashion. There are several major companies within the U.S. that have been sitting on growing stockpiles of cash since the economic downturn (for various reasons) and there have already been growing pressure and in some cases lawsuits to push these companies to do something with that money, since if it's not being used then it's potential is being wasted.

In cases like these, companies usually end up doing one of three things-
*using it to fund an acquisition or merger of/with a rival
*paying out a special dividend to the shareholders
*using it to buy back their own stock, thereby driving up the price

-all of which generate income somewhere for someone that can be taxed.

RyukaTana wrote:Now, if we're talking rebuilding just the tax code of America as it is, I'd stick with a percentage-based income tax that is weighted more heavily against the wealthy, coupled with much more oversight in how corporations are run.

The desire to tax the rich and heavily regulate corporations seems to clash with your supposed anarchistic preferences. I'm curious as to why you think this way?
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Re: How to tax?

Postby RyukaTana » Sat Apr 05, 2014 9:40 pm

Deepbluediver wrote:
RyukaTana wrote:Now, if we're talking rebuilding just the tax code of America as it is, I'd stick with a percentage-based income tax that is weighted more heavily against the wealthy, coupled with much more oversight in how corporations are run.

The desire to tax the rich and heavily regulate corporations seems to clash with your supposed anarchistic preferences. I'm curious as to why you think this way?


Ideally, I'm an anarchist. Realistically, I'm not really anything at this point.

As far as I'm concerned, if humans can self-govern and act ethically, a community evolves and no government is necessary. Leaders will arise, but leaders are not 'authoritative figures', they're people with the capability to guide and organize, nothing more. If humans can't self-govern, then government run by humans is inherently untrustworthy. Organized corruption doesn't sound much better to me than chaotic corruption, and in practice, it lasts longer, but prolonged exposure to corruption does not strike me as the better option.

Since humans can't be expected to self-govern, I don't really have any realistic political leanings, because I think humanity is doomed. However, in this hyptothetical, I am being given control over the situation, and I trust my own judgment. So, I would govern strictly, and I sure as fuck wouldn't leave people with the capability to make their own choices when they can benefit themselves by causing massive social pitfalls (not without my personal vetting, at least).

If given absolute control, I'd tear down the economy entirely. The very concept is utter shit: it's a intermediate set of imaginary figures which exists to simplify trade, and serves to do anything but, and is capable of internal failure which can dramatically fuck up lives despite the fact that the actual supply of necessities is entirely capable of supporting the society.
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Re: How to tax?

Postby JustinReilly » Sat Apr 05, 2014 11:01 pm

First off, you forgot the form of taxation that funded most of the US government's activities for its first century of existence, tariffs. Tariffs were, well, sort of sufficient until the Civil War - and especially the Civil War pensions - greatly outstripped their capacity. Then the death of mercantilism and the realization that international trade can make everyone better off finally ended their dominance. We still have tariffs, of course, but we mostly use them as a stick to beat countries that mildly annoy us with (we all know of course what we do to countries that really annoy us), not as a revenue generator.

Deepbluediver wrote:I would choose the Income tax, but with the same flat percentage (say, 10%) for everyone, as opposed to a graduated system where some people pay a different percentage. And a much simpler tax code than we have in the U.S. (I'm not familiar with the details of tax law in other countries really work), mostly for fewer deductions and a streamlining of how to calculate income.


I agree that we need to simplify the tax code. As soon as Congress realized that voters scream a lot less about tax breaks than handouts, the tax code became their go-to tool for anything from supporting small farmers to putting money in the pockets of their golfing buddies. I take issue with a flat tax, however. It seems clear to me that my ten-thousandth dollar earned in a year has a very different value and utility to me than my ten-millionth. Having five or six marginal tax rates to account for this doesn't really make things that much more complicated, we're still talking fourth-grade math here. Moreover, the wealthy reap a far greater benefit from government than the poor. A poor person might receive a pittance from welfare or Social Security, but how much do, say, the Walton family benefit from a network of well-maintained transport infrastructure, or the titans of Silicon Valley benefit from an educated populace? Hell, just having the poor well-fed and complacent enough to keep them from mobbing together and smashing everything is worth a lot to the rich. Let them pay a share equal to the value they receive.

For example, there was recently a case that the supreme court decided which basically removed a lot of the restrictions on political donations from corporate entities. To boil down a lot of it, the final verdict was basically:

1) Political donations are the equivalent of freedom of speech...
2) ...for which everyone should be playing by the same rules (for example, unions where not as limited, despite being highly politicized)...
3)...and we are going to ere on the side of less restrictions rather than more.


It was far worse than that. Political donations as free speech was decided back in the '70s. Since then the question has been, "To what extent is the government justified in limiting that free speech for the purpose of fighting corruption?" The Roberts court has been steadily narrowing that extent over the course of several rulings in the last few years. The appalling bit of the last decision by Chief Justice Roberts was that:

a) The ONLY corruption Congress may limit is strict quid pro quo corruption (you give me that briefcase full of money and I'll vote no on the bill), and
b) in fact, it is an intentional FEATURE of the US political system that legislators should feel beholden to those who put them in power. In fact,
c) the American people and their representatives have NO BUSINESS OR ABILITY to even TRY to change this.

I really wish I were making this up. I mean, the founding fathers certainly did say a few things that sounded like b), but when they were talking about those who put them in power they were talking about the VOTERS. So, if we, the people, don't want to live in a plutocracy, and we aren't permitted to change it through legislation, what are are remaining options? Well, when in the course of human events...
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Re: How to tax?

Postby Tailsteak » Sun Apr 06, 2014 7:04 am

...because the one thing people have always complained about with regard to American democracy, it's that the wealthy have too little influence...
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