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What is a progressive tax?

stoney

Part of the unwashed, middle-American horde
Jul 26, 2006
21,513
7,056
Colorado
I thought this was a pretty good description of what a progressive tax really is.

*

http://www.gold-speculator.com/casey-research/37824-daily-dispatch-spend-then-tax.html


Last week, I wrote an article titled “Spend, Then Tax,” to which one dear reader responded with a useful dissertation of the principles of taxing income. It follows here…

David,

Pertaining to some of the issues raised in your*Spend, Then Tax*piece. First, I agree with all of your observations. The one thing I never hear anyone point out, however, is this…

When people talk about the rich paying their “fair share” – and meaning a greater percentage of their income – no one ever points out that they're ALREADY paying not only a disproportionate share of the nation’s total tax receipts (as you point out and quantify in your article), but ALSO that each individual wealthy taxpayer is also paying a greater DOLLAR amount to receive the same services as their less wealthy counterparts.

To develop and explain this a little further, I see three possible systems of income taxation:

(1) A Flat Fee*(sometimes known as a poll tax) – here everyone receives the same BENEFITS from the government (e.g., military protection), so each taxpayer would have to pay the same DOLLAR amount for having these services provided to them – just as everyone has to pay the same amount for a can of green beans at the grocery store, regardless of their income level. If the tax levied was $15,000 per taxpayer, someone earning $100,000 would pay $15,000, and someone earning $50,000 would also pay $15,000 – and one could easily and logically argue that this is actually quite fair, since BOTH taxpayers are paying the same DOLLAR amount to receive the same SERVICES.

(2) A Flat Percentage*– this is more merciful to those who earn less, as it requires people who can AFFORD more to PAY more – because everyone is required to pay the same PERCENTAGE of their income for receiving exactly the same services. If the tax rate was 15%, someone earning $100,000 would pay $15,000; whereas someone earning $50,000 would pay only $7,500 – even though BOTH are receiving the same services. One could easily argue that THIS system would actually be somewhat unjust, because it takes “ability to pay” into account – different people would pay different DOLLAR amounts for identical BENEFITS.

(3) A Progressive Percentage*– this system, however, takes things a step further – and is logically (and morally) indefensible – and is the system under which we currently operate. Here a person earning $100,000 might pay a 25% tax rate, resulting in a tax payment of $25,000; whereas someone earning $50,000 might pay a 10% tax rate, resulting in a tax payment of $5,000. This methodology should be dismissed out of hand as being TOTALLY unfair – yet it perfectly describes our current system – and there are numerous voices (the “class warfare” crowd)*who claim that what we are doing is STILL unfair to those taxpayers who earn less.

So advocating for a*(2) a Flat Percentage*ALREADY represents a compassionate concession, as it results in each higher earner paying a larger number of dollars for the services they are receiving, whereas TRUE equity would require*(1) A Flat Fee*– where everyone is benefitting equally from what is being PROVIDED by the government, so each has to pay equal DOLLAR amounts.

So any logical, moral argument ought to be solely a discussion between*(1)*and*(2), but there is NO logical or moral case to be made for*(3). We spend all of our time debating*(2)*and*(3), however, without ever pointing out (or getting credit for the fact) that*(2) a Flat Percentage*would itself STILL be basing each taxpayer's tax amount on their ability to pay. We can concede that while some may legitimately find THIS to be inequitable, in the interests of being a humane and caring society, we are willing to concede and utilize a*(2) Flat Percentage*– but that there is NO moral justification for charging a wealthier person a higher PERCENTAGE of their income.

We don't get credit for the fact that the flat tax so many of us advocate is already tilted in favor of those who make less income – as they still get the same BENEFIT of the government's services while paying a lower DOLLAR amount to receive them. This item goes unmentioned not only by our ideological opponents (who advocate progressive tax rates), but also by OUR side.

Just something I thought you might want to bring up with your readers at some point, as it makes clear how a Flat Tax would be inherently more just than our current system – as well as noting its “progressive” element in terms of total dollars to be paid by each taxpayer.

Regards,

Greg

*
 
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Silver

find me a tampon
Jul 20, 2002
10,840
1
Orange County, CA
but ALSO that each individual wealthy taxpayer is also paying a greater DOLLAR amount to receive the same services as their less wealthy counterparts.
I stopped reading here. When you're starting off with the premise that the sky is green, I don't need to pay attention to the rest.
 

stoney

Part of the unwashed, middle-American horde
Jul 26, 2006
21,513
7,056
Colorado
I'm paying for public school; I'm not going to send my kids to one. How does this beneft me?
 

Silver

find me a tampon
Jul 20, 2002
10,840
1
Orange County, CA
I'm paying for public school; I'm not going to send my kids to one. How does this beneft me?
(D'oh, misread what you wrote, originally.)

Ah, so basically you're argument is that the homeless and the rich are both prohibited from sleeping under the bridge by vagrancy laws, so therefore everyone is treated the same.

You really think everyone gets the same benefits from Government? The Bush family and me, same benefits? Really?

edit: The homeless guy on the corner doesn't benefit from the enforcement actions of the SEC. Why should he pay for it?
 
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I.van

Monkey
Apr 15, 2007
188
0
Australia
I'm paying for public school; I'm not going to send my kids to one. How does this beneft me?
It benefits you indirectly.

A countries economy benefits from the availabillity of cheap labour. If the public systems for the non-wealthy aren't supported, you will lose productivity in your cheap labour base. This will have a flow on effect.

Thats poorly worded, but I hope you know the point I'm trying to make.


PS: I am very surprised to hear that the USA has a progressive tax system. I though for sure you would have a flat rate.
 

Toshi

Harbinger of Doom
Oct 23, 2001
38,029
7,549
Stoney, what's your defense for capital gains being taxed at such a low rate? How is that anything but a giveaway to the rich?
 

stoney

Part of the unwashed, middle-American horde
Jul 26, 2006
21,513
7,056
Colorado
Private Equity income being taxed at cap gains is a give away. Make cap gains the same as income, as long as income is a flat %. Get rid of all of the deductions and credits.,
 

stoney

Part of the unwashed, middle-American horde
Jul 26, 2006
21,513
7,056
Colorado
I was always a rasing asshole. Maybe my living in a car growing up, taking showers at the YMCA turned me into a cut throat survivor/type A over achiever.
 

sanjuro

Tube Smuggler
Sep 13, 2004
17,373
0
SF
I'm paying for public school; I'm not going to send my kids to one. How does this beneft me?
I'm going to use my bigger fence argument.

If you don't help the kids in your area, they will end up becoming losers and criminals, forcing you to build a bigger fence around your property.

By having better quality public schools, it attracts better quality families, which makes for better property values and quality of life.

The problem is with a bloated, inefficient, and corrupt system, but I doubt the Marin school system is as bad as the rest of the Bay Area.
 

sanjuro

Tube Smuggler
Sep 13, 2004
17,373
0
SF
P.S., please correct me about this, but I believe the Bush Tax Cuts were based around a 10 year cycle, which is due now.

Now we have to pay off the tax cuts, which just like the property values, were based on the idea everything would keep growing and growing.

Of course, the real estate market crashed and so is our economy.
 

rockofullr

confused
Jun 11, 2009
7,342
924
East Bay, Cali
P.S., please correct me about this, but I believe the Bush Tax Cuts were based around a 10 year cycle, which is due now.

Now we have to pay off the tax cuts, which just like the property values, were based on the idea everything would keep growing and growing.

Of course, the real estate market crashed and so is our economy.
Werd, people seem to be oblivious to this.
 
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stoney

Part of the unwashed, middle-American horde
Jul 26, 2006
21,513
7,056
Colorado
I've got issues with the tax adjustments, yes. What would be a isht load better would be to build simplify the tax structure.
Investment in business should not be a tax deductible line item, it's the cost of doing business. Make a flat % tax rate for commercial; make a flat % tax rate for individual.

Or, make a flat sales tax. If you spend money, you are taxed on it. If you save, you are not, but you are not a liability on society long-term, as you are saving. If you spend, you will run out of money eventually, and you are SOL.

I am a firm believer that people need to be held responsible for their decisions.
 

Pesqueeb

bicycle in airplane hangar
Feb 2, 2007
40,137
16,532
Riding the baggage carousel.
P.S., please correct me about this, but I believe the Bush Tax Cuts were based around a 10 year cycle, which is due now.

Now we have to pay off the tax cuts, which just like the property values, were based on the idea everything would keep growing and growing.

Of course, the real estate market crashed and so is our economy.
I'll have to look for it to back this up, but I had heard/read that the Bush tax cuts were done for 9 years, on purpose, so that could be pushed through using the "reconciliation" method. You know, the method that republicans decided they were dead set against when the Bolshevik Muslim used it to pass health care reform.

*edit: here is the reconciliation part.
I remember about he 9 year part now. It was because it was some trick to avoid scrutiny by the CBO. I'm still looking for that.

*Double edit, found what I think is the original article I recalled.
Why the cutoff date? In part, it was used to disguise the fiscal irresponsibility of the tax cuts: lopping off that last year reduced the headline cost of the cuts, because such costs are normally calculated over a 10-year period. It also allowed the Bush administration to pass the tax cuts using reconciliation — yes, the same procedure that Republicans denounced when it was used to enact health reform — while sidestepping rules designed to prevent the use of that procedure to increase long-run budget deficits.
http://www.nytimes.com/2010/08/23/opinion/23krugman.html?_r=2&ref=opinion
Found this article during my search. Only semi related, yet frighting when it is.
 
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dante

Unabomber
Feb 13, 2004
8,807
9
looking for classic NE singletrack
Uh, Mark, you know the main problem with your analysis (or Greg's) is that that argument falls flat when when you break out the percentages of income spent on basic necessities, right?

I mean, someone making $20k/year probably spends 99% of that on basic necessities like food, clothing, housing and transportation.

Someone making $50k/year probably spends 90% of that on basic needs.

Someone making $500,000/year probably spends 30% or less on basic necessities, and that's including a massive house, M3, etc.

Someone making millions spends even less...

And corporations can write off all of those "basic necessities" like rent, payroll, electricity, etc. Corporations get all of those tax free.

So a progressive tax (percentage) is based loosely on taxing the amount that someone isn't spending on necessities. That's why you have a mortgage interest deduction, property tax deduction, child credits, etc.
 

Silver

find me a tampon
Jul 20, 2002
10,840
1
Orange County, CA
Uh, Mark, you know the main problem with your analysis (or Greg's) is that that argument falls flat when when you break out the percentages of income spent on basic necessities, right?

I mean, someone making $20k/year probably spends 99% of that on basic necessities like food, clothing, housing and transportation.

Someone making $50k/year probably spends 90% of that on basic needs.

Someone making $500,000/year probably spends 30% or less on basic necessities, and that's including a massive house, M3, etc.

Someone making millions spends even less...

And corporations can write off all of those "basic necessities" like rent, payroll, electricity, etc. Corporations get all of those tax free.

So a progressive tax (percentage) is based loosely on taxing the amount that someone isn't spending on necessities. That's why you have a mortgage interest deduction, property tax deduction, child credits, etc.
We can just do taxes for corporations based on gross revenue then, not income.

Voila, problem solved, amirite?
 

sanjuro

Tube Smuggler
Sep 13, 2004
17,373
0
SF
The bottom line for me is how to spark the economy.

Will increasing personal taxes on the richest 2% hold them back on investing and purchasing of goods?

If it is, I'm for tax cuts.

Now just prove it to me.
 

dante

Unabomber
Feb 13, 2004
8,807
9
looking for classic NE singletrack
The bottom line for me is how to spark the economy.

Will increasing personal taxes on the richest 2% hold them back on investing and purchasing of goods?

If it is, I'm for tax cuts.

Now just prove it to me.
"Sparking the economy" and "being fiscally responsible" are often at complete odds with one another. Tax cuts and government spending (see current administration, or GWB in '01/'03) often spark the economy. Tax hikes and a reduction in government spending is fiscally responsible. Take your pick.

My take on it is that we're broke, and that we need to raise taxes *a lot* and cut spending *a lot*. Yes, it's going to hurt. Yes, unemployment is going to go up. The medicine may taste like sh!t but it'll get you better..........
 

ohio

The Fresno Kid
Nov 26, 2001
6,649
23
SF, CA
I am a firm believer that people need to be held responsible for their decisions.
And you're letting this ideology prevent you from considering the topic at any level of depth. Get past the morality and consider the economics, broadly, and you'll find yourself with a much more reasonable answer, and one that actually pays heed to a demonstrated history of fiscal success across numerous governments and societies.

Just because I want everyone to diet, exercise, dress nice, and give me handjobs, doesn't mean I should base a tax system on that principle and hope for the best.
 

Silver

find me a tampon
Jul 20, 2002
10,840
1
Orange County, CA
And you're letting this ideology prevent you from considering the topic at any level of depth. Get past the morality and consider the economics, broadly, and you'll find yourself with a much more reasonable answer, and one that actually pays heed to a demonstrated history of fiscal success across numerous governments and societies.

Just because I want everyone to diet, exercise, dress nice, and give me handjobs, doesn't mean I should base a tax system on that principle and hope for the best.
I do give good handjobs...
 

Pesqueeb

bicycle in airplane hangar
Feb 2, 2007
40,137
16,532
Riding the baggage carousel.
http://www.fairtax.org/site/PageServer

Fair.

It also fixes politically nasty problems like illegal immigrants.

Check out the calculator. For my case.
With the Fair Tax, you get:
24.29% MORE
spendable income.
$8,024.21 MORE
purchasing power.
$8,628.71 LESS
federal taxes.
Okay, I'll admit to not knowing much about how the "fair tax" is supposed to work. But they lost me the second I clicked on their web site and the first thing on top is
Mr. President- tell the IRS to lay of taxing Oil Spill disaster payments from British Petroleum.
This right wing lunacy was going around right after the first payments went out. The payments are designed to replace income that people lost as a result of the fact that oil is covering everything. It should be taxed just like the income it replaces. This is a non-issue.
 

ridiculous

Turbo Monkey
Jan 18, 2005
2,907
1
MD / NoVA
We've been over this one in the past. It's a total pipedream.
I guess I missed that one. Why a pipe dream?




Income Taxes generate 1.1 Trillion a year in revenue.

American citizens spend 11 Trillion a year.

A 10%+ VAT or higher is the same or better. I think fairtax.org and Paul Ryan or whatever his name is, is proposing a 23% VAT. So simpoh.
 

Silver

find me a tampon
Jul 20, 2002
10,840
1
Orange County, CA
Can't find the old thread, must have been lost in one of the purges.

Anyways, the FairTax people make all sorts of dodgy assumptions. Then you get into the way they quote it: The 23% rate isn't represented the same way you normally represent a sales tax rate, it's done the way an income tax rate is calculated. Why? Because doing it the normal sales tax route starts you off at 30%, not 23% :)

PDF from Bruce Bartlett here:

http://taxprof.typepad.com/taxprof_blog/files/bartlett_fair_tax.pdf
 
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dante

Unabomber
Feb 13, 2004
8,807
9
looking for classic NE singletrack
I guess I missed that one. Why a pipe dream?




Income Taxes generate 1.1 Trillion a year in revenue.

American citizens spend 11 Trillion a year.

A 10%+ VAT or higher is the same or better. I think fairtax.org and Paul Ryan or whatever his name is, is proposing a 23% VAT. So simpoh.
The VAST majority of Americans don't pay 10% in actual federal income taxes (based on gross salary). Most Americans pay far less, and people only start to pay more than 10% when you're into 6 figures (ie, double the median income in this country).

Basically you're taking the income tax that the few (rich) are paying and shifting that burden onto the other 90% of Americans..........
 

ohio

The Fresno Kid
Nov 26, 2001
6,649
23
SF, CA
Calling it a fair tax makes it about as fair as the clean air act is clean and no child left behind doesn't leave children behind. In short, it's a steaming pile of bull****. Snake oil. You're being duped.

This nation absolutely COULD use a VAT. Not as a replacement for a progressive income tax, but as a supplement to help us balance spending/saving behavior. Both are highly functional tools. Optimizing tax revenue and economic growth is mutually exclusive with enforcing ideological maxims. In fact, running anything properly in the real world is exclusive with ideological maxims, but that doesn't stop simpletons from clinging to 'em like guns and religion.
 

skatetokil

Turbo Monkey
Jan 2, 2005
2,383
-1
DC/Bluemont VA
The original poster lost me with all them capitalized words. . .

As for the argument itself, he forgot to mention secret option number 4. Many government policies are in fact regressive in nature, landing on the poor hardest of all. These policies typically fall under the category of "regulatory takings," the prohibition of certain kinds of economic activity or the stripping of property rights from politically marginal groups.

A good example in the US would be zoning codes or regulations that preclude people from operating home based businesses, thereby closing off an important avenue of economic advance for the poor. We have also seen the use of eminent domain power to acquire property at below market rates and transfer those assets to politically connected people or organizations (see: Kelo .

It seems to me that opponents of the present regime could get more traction by addressing our very real regressive policies. Or perhaps point out the fact that most of our government's fiscal activity in effect takes from the middle and gives back to the middle class. The purpose of this exercise is to buy obedience, create dependence, and skim resources which can be used to enrich and enhance the prestige of elites.

It seems to me that all this complaining about progressive taxation and wealth transfers is just politically ham fisted. Do you expect people to say "Aww, those poor rich people, I can't imagine what it would be like to only have one Bentley"?

You have to tell a story that makes personal freedom matter for people who are not Capitalist Supermen.
 

kidwoo

Artisanal Tweet Curator
Do you expect people to say "Aww, those poor rich people, I can't imagine what it would be like to only have one Bentley"?

And yet that's exactly the narrative guys like the joker believe.


The answer to your question is yes. Absolutely yes. Because this country is full of morons who think they're going to be those rich people if they can just get rid of those damn tax burdens.
 

stoney

Part of the unwashed, middle-American horde
Jul 26, 2006
21,513
7,056
Colorado
Actually, way off Kevin. Half of my family (my birth mother's side) are poor farmers in the Mid-West, or living off of social welfare. The farmers are all full itme workers, busting their asses to make a living. This is the group from whom I learned my work ethic. Those living off of social welfare all have the 'woe is me, I'm a victim' mentality. I disdain this life and lack of work ethic so much that I have written off that portion of my family. It took me many years, and dozens of requests from people who are so useless to themselves, without any handicaps, that they are unable to even keep a job at McDonalds - my real morther of which is one of them.
There are choices to be made in life about where you want to be, what you want to do, and what you are willing to do to get there. I have taken the hard road, and busted my ass to get where I am; why am I being forced to support those who have made the wrong choices, or are unwilling to work to correct their situation.
 

ALEXIS_DH

Tirelessly Awesome
Jan 30, 2003
6,147
796
Lima, Peru, Peru
Actually, way off Kevin. Half of my family (my birth mother's side) are poor farmers in the Mid-West, or living off of social welfare. The farmers are all full itme workers, busting their asses to make a living. This is the group from whom I learned my work ethic. Those living off of social welfare all have the 'woe is me, I'm a victim' mentality. I disdain this life and lack of work ethic so much that I have written off that portion of my family. It took me many years, and dozens of requests from people who are so useless to themselves, without any handicaps, that they are unable to even keep a job at McDonalds - my real morther of which is one of them.
There are choices to be made in life about where you want to be, what you want to do, and what you are willing to do to get there. I have taken the hard road, and busted my ass to get where I am; why am I being forced to support those who have made the wrong choices, or are unwilling to work to correct their situation.
you are a seriously self-hating character, almost cartoonish like.
considering the modest upbringing you mention, id think youd be more sympatetic to others in need...

about the "choices to be made", its retarded. if you are born the 7th son of an unmarried, unemployed minority woman in a depressed area.... not many options too choose from, and even, if by some statistical mistake, you end up marginally well-off, there are thousands more like you who wont... because there is NO WAY, as its economically impossible, for everybody to pull themselves from the ghetto, even if they all "work hard, save their pennies and invest wisely".

some people just wont (which may or may not be dependant on their own choices), but that doesnt mean society should turn its back on them, or worse yet, take advantage of their need/ignorance....
 
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I.van

Monkey
Apr 15, 2007
188
0
Australia
Theres been a lot of talk about moving to a flat rate tax system in AUS, and both political parties are keen on the idea, but with the way politic point scoring has become the main focus of being in office, it won't happen unless it gets bipartisan support.

Our income tax rates at present are
Tax rates 2010–11
Taxable income
Tax on this income
0 – $6,000 .......... Nil
$6,001 – $37,000 .............. 15c for each $1 over $6,000
$37,001 – $80,000 .............. $4,650 plus 30c for each $1 over $37,000
$80,001 – $180,000 ............. $17,550 plus 37c for each $1 over $80,000
$180,001 and over............... $54,550 plus 45c for each $1 over $180,000
and business tax is a flat 30%.
 

dan-o

Turbo Monkey
Jun 30, 2004
6,499
2,805
There are choices to be made in life about where you want to be, what you want to do, and what you are willing to do to get there. I have taken the hard road, and busted my ass to get where I am
None of this makes you unique in any way.

The fact that everyone hasn't reached your level of 'success' doesn't mean they haven't busted ass to get where they are either.

Grow the fvck up.
 

Toshi

Harbinger of Doom
Oct 23, 2001
38,029
7,549
I think Stoney fancies himself to be a bit of Dagny Taggart type
 

Toshi

Harbinger of Doom
Oct 23, 2001
38,029
7,549
Gah, that's not the joke. The joke is picking Dagny instead of Hank Rearden, John Galt, etc. :D