Big Picture Thinking

[kandrathe]

Flat taxes are considered "fairer" than progressive income taxes. But, I still rail at the idea of the government profiting from my success. The poor would still pay little to nothing, the rich would pay less, leaving the increase to... yes, that's right the middle class. As for value judgements, all tax systems discriminate against something. We are just used to the idea of the government discriminating against our ability to earn money. They are trying to convince us that earning alot of money is bad, so the more you earn the more you should have to pay (the government). Great system for maintaining an upper threshold on wealth.

Yes, there are Americans getting richer, and some from boom corporations (i.e.. Microsoft) are entering the classes of the noveau riche. I would argue that the progressive income tax system itself is designed to prevent most hard working American's from becoming "rich", and places an upper boundary at the "upper middle class". My definition of rich is that your assets alone sustain your lifestyle. Then you have 100% free time to either get richer, or just enjoy life. The only way to break this bondage is to overwhelm the income stream. Frankly, IMHO, you cannot do this by being an employee, except maybe at the highest levels within the top companies. And, mostly those CEO type positions are kept for the groomed sons and sometimes daughters of America's money aristocracy with prerequisites of attendance at the best schools, and then brought up through the management ranks. Most of these schools reserve positions for the sons and daughters of alumni, perpetuating the quota of privilege.

Ok, so what is the other way? Entrepreneurship (including talent). Sometimes a random great idea, carefully nurtured and protected from thieves and scammers (like lawyers, larger corporations, or even people like Mr. Gates) will result in some new rich people (egg. Steve Jobs). But, frankly I think most of us have a better chance at winning the lottery or becoming rock stars. Even once a person has achieved great wealth, ignorance and a lack of understanding of how to maintain wealth can siphon it all away quickly. I've experienced the trials and tribulations of 20 years of entrepreneurship.

[Grumpy]

Woudn't a basic answer to begin trying to solve this problem be to discontinue the policy which bases district education spending on property taxes?

[Occhidiangela]

Perhaps, and that subject is a hot one in Texas right now, on an issue called "The Robin Hood Tax."

One of the truths about a representative government is that 'folks like to see what they pay for' at least the concerned folks. Not sure what experience you have had with school boards, but let me tell you, from my experience, some of the most heated and at times petty, political activity I have ever seen, and been slightly involved with, have to do with school/taxes/value discussions. I think it has to do with it all hitting close to home, one's kids, and folks feeling that they are not getting the best bang for the education dollar spent.

[ShadowHM]

We have done that here in Ontario.

And now, NOBODY is happy.

[Jester]

Applying your own idea of richness, the obvious life-course would be to accumulate as much money as you possibly can, then, when you have just enough, cease working entirely (unless your joy is working).

So, if your idea is that people want only to earn X money, then do what they want without working, their motivations are already set out without regard to the quantity they pay in taxes. The tax rate or system, unless it is totally absurd, should be irrelevant.

What beef would you have with progressive taxation, and how would that be less fair?

Jester

[kandrathe]

Because as we work harder, and harder to earn the extra income, an ever increasing percentage goes to the government. Why? It seems very fair for the person who does very little, and for those who are enjoying the fruits of anothers labor. But, then there is another case you are not considering.

As I said earlier, it is neccesary for those who are unable to be productive to be supported by the able bodied masses. I view income taxes as punishing ones earning potential.

Let's outline an example... If your rich parents gifted you $20,000 /year (as securities w/ value at purchase -- life time $600,000 exemption per parent) and then perhaps a little more (say $99,999 gift taxed at 28%, leaving you with ~ $78,000) per year of your life until they died. So say those securities appreciated at the average stock market rate. Also say they took care of some of your expenses while they were still alive, like paying for your education, housing, clothing, vacations, vehicles, etc... Then say they were able to transfer most of their assets to you using a grantor income trust. You'd be pretty well off, and having never worked you would never have paid any income taxes. If they gave you more, there would be estate taxes on that part. When you sell the securities you would need to pay the capital gains taxes, but that seems managable. Let's say they were able to do this for 50 years...

So compare that priviledged person to the person who wants to get to the same point on his own gumption. Not so easy. The problem is not that your rich parents had too much, they undoubtably earned it. The problem is that the government taxes people who earn money much more than they do people who spend money.

[Jester]

"Because as we work harder, and harder to earn the extra income, an ever increasing percentage goes to the government."

Try not to switch it up too much. I don't think that a stock trader works harder than a contruction worker, plumber or teacher. They work differently, and market theory determines the value of what they produce, not some ethical idea of how hard one works.

If you're defending hard work, there need to be serious changes in our reward system; letting the market handle it rewards scarcity, not difficulty.

Therein lies the difficulty, eh? People who need more money than they have to survive spend 100% of what they earn, maybe even more. They are not wrong to do so, and they cannot be ethically expected to abandon either themselves or their dependents to save money. Why not tax them less, allowing them to meet their necessities, and perhaps even save some up either for the future or for investment?

People who earn far more than they need tend to spend their money... earning more money. That's capitalism for you. Why not tax them at a higher rate? The cycle of investment produces a large quantity of money, and it's hard to see how someone is disadvantaged by their own choice to pursue more wealth. If it wasn't worth it to them, they wouldn't do it; I have yet to see anyone for whom this was the deal breaker in earning more wealth.

Yet if we switched to consumption taxes, we would be taxing the first group at a much higher real rate than the second.

Why on earth would that be a good idea? It certainly isn't ethics, taxing those who need money more than those who don't. It doesn't seem to be fairness, taxing those who have little more than those who have much. To me, it seems to be little more than rewarding greed at the expense of people struggling to get by.

Jester

[Occhidiangela]

Taxing spending via a value added tax, called IVA there, is how Italy handles tax, as well as things like the high petrol tax scheme. There is no income tax as we know it, if my neighbors were to be believed. IVA is, last I remember, around 19%. What that does is create a great number of tax evaders, the Italians could write the book on that one, partly for the reasons that you cite.

The folks in the bottom third are the ones who, as a proportion of what they earn or have to spend, get hit the hardest.

Progressive income tax in the US used to be Far More Burdensome. I remember looking at the tax tables when I was a boy, and up in the multihundred of thousands income area, the tax rate was in the 70-80% range. That would be late 1960's. I remember asking my father about that, and he tried to explain it to me. In the past 20 years, I have noted that sales taxes, our version of IVA, have been creeping up to fund government at the state and local level. Here in Texas, where there is no State income tax, the sales tax is up there, somewhere in the 8% range.

The tax reforms started in the early Reagan years, which have continued, have greately reduced the marginal tax rate to where I think the highest marginal tax rate is now in the 40% range in income. That calculus goes under review every year in our Congress, and is subject to a great deal of public, and as I see it healthy, debate.

As I understand it, American taxation is at present aimed to be less of a burden to families on the lower end of the spectrum, since they have the lowest margin of safety between necessities and discretionary spending and capacity to invest. I actually think it works pretty well, and would only suggest that the deduction for kids should go up slightly. (I am biased, I have children. :) )That is a social decision aimed at inducing folks to believe they have the option to have a family without going into the red permanently.