How would you change the U.S. tax system?

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Re: How would you change the U.S. tax system?

Postby ucim » Sun May 14, 2017 11:26 pm UTC

Euphonium wrote:
slinches wrote:
Euphonium wrote:0% income tax on all income up to $50,000 per household member. 100% tax on all income above $50,000 per household member.
You know this is supposed to be Serious Business, right?
Yes, and I'm completely serious.
I guess you don't mind totalitarianism.

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Re: How would you change the U.S. tax system?

Postby CorruptUser » Mon May 15, 2017 2:19 am UTC

Or have a basic understanding of just about any social science, let alone economics.

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Re: How would you change the U.S. tax system?

Postby P13808 » Sun Jul 09, 2017 2:38 am UTC

No sales tax. No income tax below the poverty line. No wealth tax below, say, $300,000. Progressive income and wealth tax with a continuous function after that. 100% estate tax past, say, $300,000.

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Re: How would you change the U.S. tax system?

Postby CorruptUser » Sun Jul 09, 2017 1:40 pm UTC

The problem with having a 100% estate tax is that there is no tax when the estate is in an overseas trust and the kids keep getting checks every month from Aruba. Actually that's a problem with the estate tax in general. But anyway, I think the estate tax should be rolled into the income tax, not taxed separately and certainly not tax-free for the first $5.5m.

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Re: How would you change the U.S. tax system?

Postby P13808 » Sun Jul 09, 2017 5:05 pm UTC

That there are loopholes only means we should close the loopholes, not throw away a good thing entirely. If someone is hide-money-in-an-overseas-trust wealthy, they're conspicuous enough to audit. Amending the tax code to have the tax collectors figure out and/or estimate the offshore wealth and then collect on it would close the loophole.

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Re: How would you change the U.S. tax system?

Postby Dark567 » Tue Jul 25, 2017 8:22 pm UTC

You can't close all the loopholes. The biggest one being that if you tax estates over $300k at 100%, no one is going to leave an estate bigger than $300k to tax, they will make sure to donate all the money or try to consume as much as possible of it before death. Now, you can't always plan for that(i.e. unexpected death) but enough death happens somewhat expectedly that you would severely hurt your ability to collect estate taxes.
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Re: How would you change the U.S. tax system?

Postby Zohar » Wed Jul 26, 2017 12:35 pm UTC

What's the downside to money being spent and distributed among everyone in the economy, and being taxed in other ways (sales tax, IRS for employees, etc.)?
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Re: How would you change the U.S. tax system?

Postby Peaceful Whale » Wed Jul 26, 2017 1:10 pm UTC

One solution: communism

(I'm very young, forgive my ignorance and upbringing)
Couldn't everyone be taxed %10 on all the money they make? Deductions(refunds?) could then be given based on that persons situation.

Why should the rich pay a higher percentage? They already are giving more. Also for poor person with a $50 dollar income, they only pay $5, a person with $50000000 would pay $50000000. But as I said before, part of that money could be refunded based on your circumstances.

Obvious loopholes:
They lie about their income.
More work is outsourced to other countries with lower taxes.
Killing the tax collectors

Please point out other flaws with this scenario

Edit: these are two solutions, the tax plan is not communism
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Re: How would you change the U.S. tax system?

Postby CorruptUser » Wed Jul 26, 2017 1:48 pm UTC

The rich also benefit more from society. They made their money from roads that the state built, employees that the state educated, technologies that the state funded the research for, protected by emergency services and the military, and so on. So yeah, they should pay more.

As for communism, no, it's been tried and it failed miserably. Don't start up with "well my version is better", because the mountain of utopia is NOT surrounded by the trenches of despair, so if you find yourself in a trench it means you need to search far, not near.

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Re: How would you change the U.S. tax system?

Postby Zohar » Wed Jul 26, 2017 1:49 pm UTC

Well first thing I'd point out is your suggestion isn't communism.

Second, this just wouldn't be enough money. A quick search shows in 2012 Americans made around $13 trillion. With your 10% scheme this would mean $1.3 trillion collected in taxes. The federal government alone (not including state or municipal taxes) spent $3.5 trillion that year. So at the very least federal taxes would have to be higher, and you'll have to add to that the taxes for state and municipalities.

Third, why should taxes be different depending on income? There are a multitude of reasons. Let's start with a practical example by going to an extreme. Let's assume the total tax rate was 90%, for everyone. Suppose I made $1000 a month, I would end up with $100 a month. Now let's look at someone very rich, they make $100,000 a month, they'll be left with $10,000 in their pocket. That person can still lead a pretty fantastic life on that income - support their family single-handed, buy a house, send their children to schools, have good healthcare, go on vacation, etc. If we want people to lead decent lives, we can't tax them as much as people who are richer than them. Plus, a lot of taxes are the same for everyone - sales tax, for example.

Why does the government want people to lead decent lives? The ideological reasoning is the government is supposed to represent the people, and if most people have shitty lives, then the government's not doing its job. But practically speaking, even if I'm a rich person, it's beneficial to me that people around me are also well-off. Healthier people means less susceptibility to disease. Educated people means more scientific innovation, and art and culture. Better financial status and home security means reduced crime. And all of those things lead to a better economy, which helps sustain my wealth (people buy my products/require my services and can pay for them).

There's also ideological reasons to tax the rich more - in the vast majority of cases, people don't become rich on their own. People become rich because their parents are rich. It's not a merit-based system. Taxing rich people more is a way to provide people who are less fortunate with more opportunities.

I'm not an economist or a philosopher, so I'm sure I've gotten a few things wrong here, and certainly missed a bunch of other reasons why taxes should operate in this way, but that's a start.
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Re: How would you change the U.S. tax system?

Postby Soupspoon » Wed Jul 26, 2017 2:02 pm UTC

(Ninjas exist!)

10% of $10 leaves $9 'free' .10% of $10k leaves $9k.10% of $10mil leaves $9mil. Such a directly linear relationship leaves the top-end with plenty of excess to sustain (and uplift) themselves, but those at the bottom-end may be barely fulfilling various commitments, and have nothing at all to spare to invest in improving their situation.

Starting from "the first $1000 (per a given period of time) is free, you then get taxed 10% on the rest" guarantees a minimum of $1000 'maintenance' to this that earn that much (or exactly as much as they can/will earn for those who don't even make that level, at least until you add in top-ups/reverse taxes to the equation). And then if you add higher brackets such that each $ above $100k is subject to another 10% skimmed off, and other such distinctions, you're not depriving (any more) those under those new limits, but the person with $900k to swing around with abandon now has a slightly less extravagent amount to spend.

The problems with this include engineering things so that you perhaps earn $99,999.99¢ by some financial cup'n'ball trick (which you can afford to do). So maybe it should be a continuous asymptotic curve, going from zero taxed at $minimum to $maximum untaxed at $infinity, and people end up settled naturally upon the bit of the curve where they feel comfortable in not additionally depriving themselves of wealth in order to spite the system (assuming they even have the option).

But, whether stepped or comtinuous, you then get complaints by the bigger earners (who, coincidentally, are also rich enough to help with campaign funds!) if at any point the brackets get close enough to 100%-of-above-a-certain-amount to make it so that earning more just shovels it straight to the government, discouraging you from earning more, so why should you try to run a company with twice as many employees (they say) if you're not going to be rewarded by being able to buy a second luxury yacht? The ultimate limit of 50% tax rate at the higher tiers seems to satisfy medium earners, intellectually, but doesn't satisfy the poorer ones (getting on to 100% would pleae them) or the higher earners (40%? Lower?), and guess who usually influences policy more?

And that's before the complication that most economies do things like "if you are married, you're allowed an untaxed amount 1.5 times the single-persons' rate upon the higher earner's earnings, and a different multiple upin anything the partner earns" to correct the perceived inequality of either having a presumed family (or family in potentia, but still a non-earning money-sink) that you need extra breathing space from taxes for, or to handle the "two can live as cheaply as one" inequality if the benefits/relief/exemptions are instead (or additionally!) administered by way of adjustments based upon minority dependents. Ditto also elderly/infirm, employable-but-not-currently-employed, etc. Making it so complicated that people who can afford to pay people who understand these things do pay these people (those who can't don't, producing more inequality out of what may have been honest attempts to introduce a more practical equality). But wiping all these expected adjustments out and stsrting over is just going to benefit those who can afford to pay people who understand how you started over, again, if not those who can also afford to pay people to persuade you start over in a particular way that they (perhaps above all others) like.


It's at times like this that one starts to wonder what circumstances could possibly turn the tax spaghetti into a more handleable bowl of soup.

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Re: How would you change the U.S. tax system?

Postby CorruptUser » Wed Jul 26, 2017 3:19 pm UTC

You think 120k/yr after tax really is enough to live a fantastic lifestyle? For a single person, yes, but not if you have 3 kids. The killer is that you lose all the subsidies by that point, such as tuition assistance, etc. Your kids' college is going to be 600k, etc.

It's a COMFORTABLE lifestyle, to be sure, but not "fantastic". Also don't want any complaints, because it sure as tell beats the alternative.

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Re: How would you change the U.S. tax system?

Postby Zohar » Wed Jul 26, 2017 3:38 pm UTC

OK, fine, I admit my hypothetical, extreme, proposal I put up in order to prove a point, of taxing a straight-up 90% tax rate is unreasonable. You got me.

Also, send your kids to college in Europe or something, it would cost you a whole lot less, but that's beside the point.
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Re: How would you change the U.S. tax system?

Postby cphite » Wed Jul 26, 2017 8:08 pm UTC

Peaceful Whale wrote:One solution: communism


No. Communism is a terrible system.

(I'm very young, forgive my ignorance and upbringing)
Couldn't everyone be taxed %10 on all the money they make? Deductions(refunds?) could then be given based on that persons situation.

Why should the rich pay a higher percentage? They already are giving more. Also for poor person with a $50 dollar income, they only pay $5, a person with $50000000 would pay $50000000. But as I said before, part of that money could be refunded based on your circumstances.


The rich pay higher percentages for two reasons. First, because they can... we can't just tax people at something like 10% and expect to be able to pay for all of the stuff that government does, so we need people to pay higher rates... but people who aren't making that much in the first place cannot afford to pay more; or anything in some cases. Low income families are often struggling to make ends meet even without taxes.

Second, people who are wealthy benefit more from society, and so they pay more. How much more is open for debate, but it's generally accepted that people who make a lot of money should pay more taxes.

Obvious loopholes:
They lie about their income.


Happens all the time.

More work is outsourced to other countries with lower taxes.


Also happens all the time... which is one of the reasons it actually makes sense to lower tax rates on businesses, or create other incentives to keep jobs domestic.

Killing the tax collectors


Umm... I really don't see this as being a problem... which is to say, I don't believe there are tax collectors being killed, not that I condone the killing of tax collectors.

Please point out other flaws with this scenario


Really the biggest flaw is that it'd be very difficult to come up with any single percentage that could both pay for running the government, and allow lower income people to stay afloat. So we need a progressive tax rate. We could probably simplify it quite a lot... for example, reduce the number of tiers.

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Re: How would you change the U.S. tax system?

Postby ucim » Wed Jul 26, 2017 9:24 pm UTC

cphite wrote:We could probably simplify it quite a lot... for example, reduce the number of tiers.
The number of tiers isn't what makes tax law complicated. It's actually pretty transparent. Rather, it's the differing treatment of different kinds of income, these differences being different depending on how much of what kind of other income there is, and those differences being different depending on.... turtles all the way down.

And then if you're unlucky, you have to do the whole thing over again under different rules (AMT).

Now I do agree that different kinds of income should be taxed differently, and that expenses should offset income in some cases, and ultimately, life is complicated. That's the fundamental reason taxes are complicated.

Now, taxes are more complicated than they need be because complex taxes benefit politicians by hiding what's really happening, and since there's no direct accountability, it wears people down. When people don't understand something, they are easy to pull wool on.

I don't see that changing any time soon.

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Re: How would you change the U.S. tax system?

Postby CorruptUser » Wed Jul 26, 2017 11:26 pm UTC

Taxation is the art of plucking the most feathers from the goose with the least amount of squacking.

But if you want to start with taxes, start with the "stealth" taxes; payroll taxes that you pay in the form of reduced wages.

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Re: How would you change the U.S. tax system?

Postby Pfhorrest » Thu Jul 27, 2017 4:01 am UTC

0) Make tax refunds paid out in monthly installments instead of one lump sum, and allow taxes due after filing to be paid monthly to be fair and symmetric about it.

1) Give a tax credit of 1% the mean taxable income to all filers, and fund it with a 1% flat tax on all taxable income. This is automatically revenue-neutral because that's how averages work, it just puts a gentle center-ward pressure on all post-tax incomes, to counteract the tendency for the rich to get richer and the poor to get poorer. (Because the mean income is currently around the 75th percentile, most people see a net tax benefit from this, and most of the 25% who see a net loss, being relatively close to the mean income still, only see a small net loss).

3) Slowly increase that percent over time at least until the tax credit just exceeds the poverty line income (further increase thereafter up for debate). Make this credit count as "income" for the purpose of means-tested social programs. You end up with a tax-funded basic income, and gradually supplant other social programs with it, saving money for everyone.

4) Eliminate all other special taxes, deductions, etc, and charge a flat tax rate to all filers. Combined with the basic income tax and tax credit above, this still has the net effect of a progressive income tax: people earning exactly the mean income pay exactly the "flat" rate because the basic income has no net effect on them, people above the mean pay more, people below it pay less and less until the people at the bottom still get a net gain after taxes. Adjust the basic income rate as necessary to make sure the people at the bottom still get at least a poverty-level net tax credit.

5) Set the flat tax rate automatically to (government expenses - other sources of government income) / (total taxable income). Thus increasing spending automatically increases taxes unless other funds are somehow raised (such as by borrowing) to offset the expenses.

6) Define taxable income to be all income except from the sale of goods and capital (because you're just exchanging one form of wealth for another), minus all expenses except for the purchase of goods and capital (same reason, you're not actually losing wealth, just changing it into a different form); in other words, your taxable income is your net increase in wealth, how much goods and capital (including but not limited to money) you have. This has incentivizing effects of encouraging those with unused capital to sell it off, and to spend that money buying the labor and services of other people, which has a natural redistributive effect.

7) Add a special 1% flat tax on all incomes from rent and interest, allowing this to go negative so that it becomes a tax credit for people who pay more on rent and interest than they make from it (which I suspect will be most people). This further counteracts the rich-get-richer-and-poor-get-poorer effect of unequal distribution of capital ownership, and further encourages capital-owners to profit from selling their unused capital instead of lending it (since that's tax-free per above), naturally increasing the distribution of capital ownership. (Note that this is not a capital gains tax; owning something that increases in market value over time doesn't hit you with this tax, only charging people for the use of your capital does.) Slowly increase this percent over time, to what extent is up for debate.

8) Require 100% of corporate profits to be paid out as dividends (which are taxable income to the shareholder), however have a shareholder-settable percent of those dividends (defaulting to 100%) automatically re-invested back into the company in exchange for an increased share of ownership (compared to those who opt not to have them reinvested). All corporate profits thus pass through the corporation's shareholders for tax purposes, being taxed at those shareholders' respective effective tax rates. Corporate taxes per se can then be eliminated entirely.

9) Have the government itself start building a highly-diversified, stable investment portfolio, to generate passive income for the government, but without the government actually owning outright any whole companies, just many spread-out shares of many different companies. Use that passive income to offset spending, and consequently reduce everyone's tax burden. Take this as far as possible, hopefully to the point of eventually eliminating the need for taxes to fund government entirely.
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Re: How would you change the U.S. tax system?

Postby jewish_scientist » Thu Jul 27, 2017 4:09 pm UTC

The first thing I would try to do, mostly because it would be the least controversial, is replace the tax brackets with a continuous function. I have 4 reasons for doing this.

1) Formally dividing society up into different socio-economic classes never results in good things.
2) Change to the tax system are global, making cherry-picking who gets unfair tax breaks more difficult.
4) Odd things, like a sudden spike in taxes owed caused by a small increase in income, cannot happen.
3) I feel like mathematics based on continuous functions are inherently better.

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Re: How would you change the U.S. tax system?

Postby Zohar » Thu Jul 27, 2017 4:15 pm UTC

Regarding your third (fourth) point, that won't happen, tax brackets don't work like that. Let's say the tax bracket up to $10,000 yearly income is 3%, and between $10,001-$20,000 it's 5%. If I make 10K a year, I'll pay 3%*$10,000=$300. If I make $11,000, I'll pay 3%*$10,000+5%*($11,000-$10,000)=$350. You won't get huge spikes.

Regarding your last (third) point, there are two reasons why this doesn't work as much. First, continuous functions can often be harder to program, when talking about inflexible systems such as IRS uses. But second, it doesn't make that much sense considering the way brackets work today. Like, if I'm considering to switch between a job that pays me 50K a year to a one that pays me 55K a year, now I have to do a convoluted calculation to figure out how much tax I'll pay. With a bracket system, it's actually fairly simple.

Not to mention, the bracket system is continuous (up to the point of only have cent-resolution). I'm guessing you're talking about functions that are not defined differently on different domains.
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Re: How would you change the U.S. tax system?

Postby Netreker0 » Sun Jul 30, 2017 5:13 am UTC

ucim wrote:
Euphonium wrote:
slinches wrote:
Euphonium wrote:0% income tax on all income up to $50,000 per household member. 100% tax on all income above $50,000 per household member.
You know this is supposed to be Serious Business, right?
Yes, and I'm completely serious.
I guess you don't mind totalitarianism.

Jose


Respectfully, this isn't totalitarianism (though it would certainly be easiest to implement, and quite complementary, to a totalitarian system of government.) It's extreme socialism, one that I believed is doomed to fail because it permits literally zero material incentive to work beyond a certain point, but something people often forget is that socialism doesn't always come hand in hand with authoritarianism.

jewish_scientist wrote:The first thing I would try to do, mostly because it would be the least controversial, is replace the tax brackets with a continuous function. I have 4 reasons for doing this.

1) Formally dividing society up into different socio-economic classes never results in good things.
2) Change to the tax system are global, making cherry-picking who gets unfair tax breaks more difficult.
4) Odd things, like a sudden spike in taxes owed caused by a small increase in income, cannot happen.
3) I feel like mathematics based on continuous functions are inherently better.


I am intrigued by this idea, and in particularly I agree with reasoning (1). However, I worry that implementing a continuous function would be doing something that would be hard for most people to really understand (as much as I wish it were so, the majority of people would not be able to calculate their taxes if doing so required integration) to achieve primarily a symbolic goal.

As for your other reasons, they are laudable goals that, unfortunately have nothing to do with our current system of tax brackets. Two were previously addressed. As for the other one:

(2): If you changed the tax brackets to a continuous function, absolutely nothing would change with respect to unfair tax breaks. These tax breaks are the result of regulations that, for example, charge investment income at a separate rate, or allow for beneficial fudging with adjusted bases and depreciation with certain assets, or allow certain industries to write off certain expenses, while similar expenses cannot be written off in other industries. These are separate parts of the tax code--changing to a continuous function would only mean that you need calculus to figure out how much you save.

There have been some great ideas in this thread, but most would be quite complicated to implement. I favor simplification--eliminate all tax credits and all tax penalties (except those relating to late payment or non-payment), go back to a simple, progressive tax bracket system. Give everybody the option to easily opt-in to having their W-2s and 1099s and other relevant forms directly to the IRS so that they can send you something like a ReadyReturn to check and file. Limit deductions to actual losses in owned business entities and realized investment losses. Reduce the burden on families having an array of tax brackets based on household size.

We have some laudable social engineering goals built into the tax code, mostly because it's easier to reach a compromise on tax breaks than spending bills. However, they make things painfully complicated, and it forces people to work to figure how to minimize their tax bill or to overpay. Instead, if we really want the government to create incentives for certain things, then we call it what it is and appropriate funds for a direct subsidy. If we want to encourage education, instead of having a tuition deduction, we can support government-funded merit-based scholarship, need-based grants, a flat-grant for anyone based on the type of degree program they're enrolled in, etc. If we want to encourage home ownership, we could for example subsidize the lenders by guaranteeing a portion of every mortgage.

As others have mentioned, most people want to comply with the law, and will do so if it doesn't require jumping through so many hoops. A simplified tax system facilitates this. As an added benefit, it puts a brighter spotlight on government actions that favor one thing or another. Except for the wealthy vs. non-wealthy debate, when people hear about tax breaks, they don't tend to look too closely at who precisely benefits and by how much. When potentially market distorting actions must be couched as spending bills, then at the very least people are more likely to take a closer look at what the results will be and whether they think it's a worthwhile government action.

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Re: How would you change the U.S. tax system?

Postby ucim » Sun Jul 30, 2017 1:38 pm UTC

Netreker0 wrote:Respectfully, this isn't totalitarianism
Correct. However it's the kind of absolutist thinking that complements and leads to totalitarianism, or at least authoritarianism.

By "continuous function" I think jewish_scientist (ironically, as it turns out) was thinking of "continuously differentiable" function. Discrete tax brackets are not a problem as they only apply to incremental income.

"Tax simplification" always sounds good. Who wants "tax compliexification" besides tax preparation companies? But unless you're just an ordinary salaried employee with an ordinary savings account, chances are your financial life has some complexities already built in. A fair tax system has to reflect these inherent complexities.

You make a good point about social goals being (inappropriately) built into the tax code, but I'm not quite sure it's inappropriate. After all, if a social goal is using tax money, it's already built into the tax code one way or another.

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Re: How would you change the U.S. tax system?

Postby gmalivuk » Mon Jul 31, 2017 12:04 am UTC

jewish_scientist wrote:The first thing I would try to do, mostly because it would be the least controversial, is replace the tax brackets with a continuous function.
It is already a continuous function.

1) Formally dividing society up into different socio-economic classes never results in good things.
Do you have any evidence that tax brackets formally divide people into classes, or that it results in bad things?
2) Change to the tax system are global, making cherry-picking who gets unfair tax breaks more difficult.
I don't see how this is related to the function used to determine tax brackets.
4) Odd things, like a sudden spike in taxes owed caused by a small increase in income, cannot happen.
Such things already can't happen, thanks to the amount you have to pay already being continuous.
3) I feel like mathematics based on continuous functions are inherently better.
It is already continuous, and making it differentiable makes the actual mathematics of figuring out how much tax someone is supposed to pay far more complicated, which I would argue is the opposite of "better" when it comes to tax systems.
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Re: How would you change the U.S. tax system?

Postby Netreker0 » Mon Jul 31, 2017 8:13 am UTC

ucim wrote:
Netreker0 wrote:Respectfully, this isn't totalitarianism
Correct. However it's the kind of absolutist thinking that complements and leads to totalitarianism, or at least authoritarianism.


I don't mean to be snarky, but why did you quote me, leave out the very next part where I explicitly state that totalitarianism and that crazy 100% socialist tax system would complement one another, and then say basically what I said in that parenthetical as if it were some new thought you were adding?

Again, sincerely not meaning to be snarky. I'm curious whether that was a deliberate decision, or if I did a poor job making that part of my post understood. Was I being too subtle?

You make a good point about social goals being (inappropriately) built into the tax code, but I'm not quite sure it's inappropriate. After all, if a social goal is using tax money, it's already built into the tax code one way or another.


Respectfully, you missed most of my point (or perhaps more accurately, I failed to communicate that point well?) I have no problem with tax money being used to promote government interests, including a bit of social engineering (on a limited scope.) However, as I have pointed out, the tax deductions (or increases) are different than appropriations. I can understand your confusion. It is not uncommon for a single bill to, for example, include both a change in the law that would spend tax money and a change in the tax code that would raise revenue to pay for that spending.

The distinction between tax-deduction-based "spending" and explicit appropriations-based spending are two-fold. The first is psychological/political. It's too easy for lawmakers to think of tax deductions as a reduction of or simplification of government, and to dress them up as such to the public. When we allow our government to spend money, we tend to see that as an increase in the size, power, and complexity of government. When we eventually have to raise taxes to pay for that spending, we think the same. Yet somehow, we're less inclined think the same thing when we try to achieve similar goals through selective tax cuts, despite the fact that changing the tax code (even to selectively reduce taxes) is still complicated, often requires an increase in bureaucracy to implement, and implicitly cedes more power to the government. Because so many people buy into this fiction, we often don't raise tax credits to the same sort of scrutiny as a spending bill. If someone says, "I want the federal government to pay full tuition for everyone for at least a four-year degree program," people will ask questions. Is this a worthwhile goal? Is this goal something government should be involved in? Is advancing that goal worth the cost of doing so? If, instead, you frame it as a tax credit, too many people stop asking those questions. And in case I was once again being too subtle, I think those are very important questions that we should be asking every time we give the government the power to do something.

The second distinction is practical. When tax money is appropriated and used for something, the government (or some private entity voluntarily agreeing to work with the government) is responsible for everything. The government handles the movement of funds. The original law determines--in the abstract--how those funds are used and who is to benefit from them, but the government is responsible for handling those questions on a more practical level. If it's a program to put money in the hands of certain people, then the government is responsible for identifying those people, setting rules for eligibility, establishing the screening or application process, and disbursing funds. The government handles most of the actual work, and imposes a burden of work only on those citizens specifically trying to benefit from that program. In contrast, the IRS currently imposes most of the burden of implementation on the tax-payer (or private third party service providers.) Worse, because all of these special breaks are put into the same system, and sometimes interdependent, you effectively impose a burden on every taxpayer of having to have at least a basic understanding of all of crap we've added to the tax code, not just what might be most relevant to them.

On a superficial level, this may not seem like an important distinction. If you don't want an educational grant, you don't need to do the work to apply for it. If you don't want an educational tax credit, pretend it doesn't even exist on the tax forms. In practice, we've already put so many breaks into the tax code that many people can benefit from tax credits and deductions they might not have sought (and probably wasn't originally intended for them), and we've long recognized this fact and priced it into the system. So in practice, the only way to avoid overpaying into the system is to know everything in the system (or in most cases, to hire someone who does.) What this thicket of deductions and credits have done is essentially created an entire industry of tax preparation experts, and this isn't even considering the more complex aspects of the tax system that lend themselves to tax lawyering.

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Re: How would you change the U.S. tax system?

Postby ucim » Mon Jul 31, 2017 3:40 pm UTC

Netreker0 wrote:...why did you quote me, leave out the very next part where I explicitly state...
I try to trim mercilessly when I quote, so readers don't have to read the same thing twice, especially when the entire post being quoted is right above mine. In this specific case
Spoiler:
...your comment "corrected" something I didn't say. I didn't say this was totalitarianism, just that I surmised from your comments that you didn't mind it. I concluded this because of the way the two complement each other. Essentially, it's the same kind of thinking that leads down that garden path. Then you said "but that's not what it is (though it's related)" and I said "yeah... it's related, and that's a problem", and you said "yeah, I said it was related..."
the point of my statement wasn't that it was (related to) totalitarianism, but that that relationship was a problem.

As to the deduction vs appropriation thing, you make good points, though I have a few quibbles (I don't think people think of tax deductions as a simplification of government, for example). But yes, deductions and appropriations do work (and feel) differently, and there are almost certainly procedural rules that make their passage different. But I also think that whether or not people "ask questions" is more based on whether the thing being proposed is a change, rather than whether it's a deduction or an appropriation.

And yeah, it does add another layer of complexity to something which is already inherently complex. I think it's a mistake though to think that removing these things will lead to a simple and fair tax system, which is the rallying cry for many who propose it. It might be marginally simpler, but it might also be marginally more (or less) fair, and that's a big discussion for each item. No magic bullet.

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Re: How would you change the U.S. tax system?

Postby arbiteroftruth » Mon Jul 31, 2017 4:34 pm UTC

I've been considering the notion of a progressive bracketed sales tax.

You classify all manner of goods and services into various categories based on industry, and create brackets for sales tax on goods and services sold in that industry. So for example, basic foods in a grocery store would probably have 0% tax, but that 7-layer wedding cake might have a 25% tax. In general, you'd try to do it the same way we do income tax brackets, but separately for each industry. So using the food example again, you might say that individual food items are tax free up to $10, subject to 10% tax for additional price between $10 and $20, and so on. Likewise, a cheap car that gets you from A to B might be tax free, but a luxury car will have a very high tax rate. Likewise for rent/home ownership, clothes, and everything else. You'd have to update the brackets every few years for inflation.

Having separate bracket lists for separate industries would make the overall set of rules very complicated, and you'd have to guard against loopholes that try to claim a large purchase is actually a large number of small purchases (maybe a restaurant claims to technically be selling each individual pea on your plate separately for a few cents each), but importantly, the typical ordinary citizen isn't the one who has to deal with that complexity. Companies are ultimately the ones responsible for paying sales tax on the goods they've sold, and even a rather small company can hire at least one full time accountant to deal with taxes. At the same time, you avoid taxing the poor, since necessities would fall into the tax-free brackets, while big luxury items end up facing a very high effective tax rate, and the whole spectrum in between is a progressive tax.

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Re: How would you change the U.S. tax system?

Postby ucim » Mon Jul 31, 2017 5:21 pm UTC

arbiteroftruth wrote:So for example, basic foods in a grocery store would probably have 0% tax, but that 7-layer wedding cake might have a 25% tax
What about a six layer wedding cake? A six layer cake that's not a wedding cake? A two layer cupcake? A something-that-somebody-invented-that-doesn't-have-a-tax-bracket-assigned-yet?
arbiteroftruth wrote:Having separate bracket lists for separate industries would make the overall set of rules very complicated
Ya think?
arbiteroftruth wrote:but importantly, the typical ordinary citizen isn't the one who has to deal with that complexity. Companies are ultimately the ones responsible for paying sales tax on the goods they've sold, and even a rather small company can hire at least one full time accountant to deal with taxes.
Are you volunteering to pay for doubling the staff of a sole proprietorship? If not, are you volunteering to pay the cost difference between what the goods would have cost, and what they will now cost after allowing for the passing on of the cost of the "complexity accountant"? (We'll make it simple - exempt the first $100 of goods sold on the first day of each month that begins with Monday, but increasing the rate by log(base 7) of two for succeeding days of the week, except for clothing designated as "basic" clothing, and cars under $5000 (unless they are electric powered, but only in states that allow direct sales of automobiles).

Nice idea, but it falls under the "free money" fallacy.

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Re: How would you change the U.S. tax system?

Postby arbiteroftruth » Mon Jul 31, 2017 5:36 pm UTC

ucim wrote:
arbiteroftruth wrote:So for example, basic foods in a grocery store would probably have 0% tax, but that 7-layer wedding cake might have a 25% tax
What about a six layer wedding cake? A six layer cake that's not a wedding cake? A two layer cupcake? A something-that-somebody-invented-that-doesn't-have-a-tax-bracket-assigned-yet?


Do you not understand the concept of "examples"? The tax isn't based on the fact that it's a 7-layer wedding cake. The tax is based on the fact that it falls into the broad category of "foodstuffs" and has a price tag above a certain point.

ucim wrote:
arbiteroftruth wrote:but importantly, the typical ordinary citizen isn't the one who has to deal with that complexity. Companies are ultimately the ones responsible for paying sales tax on the goods they've sold, and even a rather small company can hire at least one full time accountant to deal with taxes.
Are you volunteering to pay for doubling the staff of a sole proprietorship? If not, are you volunteering to pay the cost difference between what the goods would have cost, and what they will now cost after allowing for the passing on of the cost of the "complexity accountant"?


Do you not recognize the difference between an option and a requirement? You don't have to hire an accountant. That's just an option I thought was worth mentioning because it means that even a relatively small company wouldn't face much bureaucratic hassle. For a *very* small company, such as just one person, they would probably just do the taxes themselves and deal with the hassle.

You're going to have to expand on your "free money" objection if it's meant to be an actual argument.

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Re: How would you change the U.S. tax system?

Postby ucim » Mon Jul 31, 2017 7:27 pm UTC

arbiteroftruth wrote:The tax is based on the fact that it falls into the broad category of "foodstuffs" and has a price tag above a certain point.
Ok, that wasn't clear. It sounded more like a tax on "percieved luxuriousness". However, this penalizes bulk purchases, which inherently cost more. I suspect the effort involved in de-loopholing it exceeds the benefit.

arbiteroftruth wrote:You don't have to hire an accountant.
No, but somebody's got to do the extra work. One way or another, this will cost somebody. It will be passed on to the ultimate consumer. Again, I don't see the benefit outweighing the hassle.

arbiteroftruth wrote:You're going to have to expand on your "free money" objection if it's meant to be an actual argument.
There is no free money. Things that look like they generate free money actually end up spreading the cost around so that nobody knows where the costs went. Simple example, government can just print more money. Voila - free money! But it makes everyone else's money less valuable, so the money really isn't free. That's how inflation works, and it affects interest rates, prices, salaries... (yes, in the right proportion it can stimulate the economy but that's not the point). In general, these are called externalities - a form of cost-shifting that looks like cost-disappearing.

In this case (re: our posts), I am referring to the idea that a graduated sales tax will generate a "better" revenue stream. It's not free however; you've also generated a huge set of costs for businesses (which become costs for consumers) that are unaccounted for. It will also generate loopholes we haven't even begun to think of (though you hinted at a few youreself). Those are externalities. It's how much this "free money" costs.

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Re: How would you change the U.S. tax system?

Postby arbiteroftruth » Mon Jul 31, 2017 7:58 pm UTC

ucim wrote:
arbiteroftruth wrote:You don't have to hire an accountant.
No, but somebody's got to do the extra work. One way or another, this will cost somebody. It will be passed on to the ultimate consumer.


Sure, but the flip side is that the consumer has no income tax to pay. In terms of cumulative tax-preparation burden across society, causing a hassle for business owners (which is something that already exists anyway, since sales tax is already a thing in a lot of places) is more efficient than causing a hassle for every single worker in the economy.

Re: free money. I'm aware of the concept of the objection. I don't see where I've made any claim that amounts to saying this proposal generates free money. Sure, I think it would be better in some ways, but unless you're saying that "improvement" is always fundamentally impossible because there's no free money, you're going to have to be more specific about which perceived improvements are merely an illusion.

If the current system literally threw some money in a fire every now and then, proposing a system that *doesn't* throw money in a fire would give you 'free money', but would not be guilty of any fallacy. There is such a thing as one system being more efficient than another.

In terms of sales tax vs. income tax, there are some tradeoffs. The transition is inherently inflationary. Consumers suddenly get to keep all their income, but the prices of goods also suddenly go up because of sales taxes (obviously you'd want to soften this with a gradual transition). Similarly, the typical wage-earner no longer has to file taxes, but the small business owner has more complicated taxes than before. There's always a tradeoff, but the question is whether one way is overall more efficient than another. A sales tax based system is more efficient in terms of collecting taxes (you don't have to worry about undocumented workers, as long as they're still spending their money here), and more efficient in terms of filing taxes (taxes are filed per company, rather than per wage earner, so less overall tax-prep effort. Doing things in bulk is more efficient in general). The biggest downside of a sales tax is that its regressive, but my proposal is to fix that directly by creating brackets for the sales tax. That introduces some extra complexity back into the filing process, but probably not much worse than income taxes are today, and again isolated only to companies.

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Re: How would you change the U.S. tax system?

Postby ucim » Mon Jul 31, 2017 8:43 pm UTC

arbiteroftruth wrote:Sure, but the flip side is that the consumer has no income tax to pay.
Yeah, that will last all of ten minutes. Then we'll have both taxes, and an alternate sales tax for people who don't pay enough sales tax based on their income. :)

arbiteroftruth wrote:In terms of cumulative tax-preparation burden across society, causing a hassle for business owners (which is something that already exists anyway, since sales tax is already a thing in a lot of places) is more efficient than causing a hassle for every single worker in the economy.
Well it also poses a barrier to small business. For example, a small business that generates mostly non-taxable sales still has to have a tax id number. Getting that number is a hassle and an expense. For one branch of my business, it costs about a hundred times as much to pay the registration fees as the taxes I'd be remitting. But since the taxes are not exactly zero, I have to do it. Imagine how much more complex and expensive your proposal would make it.

Thing is, sales tax is paid piecemeal. There are many teeny transactions, each one of which has to be processed separately (and segregated by locality and type). Income tax is aggregated and you are taxed on the sum, which is known at the time. Far simpler.

I do see the appeal of taxing per company rather than per person (more efficient on the surface); you might consider a VAT rather than a sales tax. Fixing the regressiveness could be attacked (with an axe) by exempting entire categories (such as food, clothing, education, basic needs...) but I think you'll find that the actual implementation gets quite problematic. I don't think raw price is a good indicator of whether goods are luxury or basic, and that's what you're aiming at. You could exempt the first $10000 spent on food, but to do that you'd have to know how much your customer has spent overall YTD so you could charge her properly. Too intrusive (though the data is sadly already out there).

I just see red flags every time somebody says "oh, don't worry, somebody else will have the hassle/cost".

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Re: How would you change the U.S. tax system?

Postby jewish_scientist » Mon Jul 31, 2017 9:50 pm UTC

Zohar wrote:Regarding your third (fourth) point... on different domains.

I am really confused. I was talking about the first set of tables here.

Netreker0 wrote:As for your other reasons, they are laudable goals that, unfortunately have nothing to do with our current system of tax brackets.

I said that this is where I would start; not where I would end. Doing this is not going to fix the huge mess that is U.S. tax law. However, it is a relatively uncontroversial change that Congress could eventua- :lol: Oh man, give me a second. I can do this. *deep breathing* However, it is a relatively uncontroversial change that Congress could eventually pass given enough political pressure.

BOOM! I did it with a straight face! On only my second try no less! Denzel Washington, eat your heart out; that next Oscar is mine!

There have been some great ideas in this thread, but most would be quite complicated to implement. I favor simplification...

I understand why you want this, but I think that boat has sailed. A modern industrial economy is so inherently complex that I believe that any effective tax system would be so complex that no single person would understand all of it; and that is o.k. Many things in the world we live in are complex, yet work fine. No single person knows how every part of how a phone call works1, yet phones function properly nearly 100% of the time. This happens because every person trusts that the other persons will do their jobs correctly. As long as accountants exist who understand specific niches of the tax code, there should not be any need for individuals to understand how their taxes are calculated. Just as the owner of a small bakery trusts that the tax-calculating software she bought was designed correctly, the accountants who made that software trust that their baked good will be available to purchase every morning.


Spoiler:
1: Even if you who wrote every line of code in your phone in a language you invented and soldered every part of a motherboard you designed together by hand, you would not know how a phone works. If you did, you would be able to tell me how far should the ear-piece should be from the ear. Remember, the human ear is designed to detect sounds far away from it, you want to minimize the risk of eavesdropping, and the physical structure of the ear piece will diffract the sound waves. Overall it is a rather complex acoustics problem. Oh yeah! If you are on a cell-phone, you better know how every part of several satellites work. Ultimately I can sub-divide the parts of a phone almost infinitely, but humans do not have an almost infinite capacity to store knowledge.

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Re: How would you change the U.S. tax system?

Postby ucim » Mon Jul 31, 2017 11:53 pm UTC

jewish_scientist wrote:No single person knows how every part of how a phone call works1, yet phones function properly nearly 100% of the time. This happens because every person trusts that the other persons will do their jobs correctly. As long as accountants exist who understand specific niches of the tax code, there should not be any need for individuals to understand how their taxes are calculated.
No, not by a long shot. First off, as Darth Vader himself said, "you're far too trusting".

On the surface, it seems like phones work well. But they do things that you do not want them to do, that you probably don't know that they are doing, and if you did know, you couldn't do anything about. In addition to connecting you to the party you are calling and allowing you to speak privately to them, they are scarfing down the connection info and saving it in a database, possibly scarfing down the actual audio of the call and saving it, correlating it with other information that they have on file or get from elsewhere, and building a database of your personality so that it can be sold to businesses and content providers, to better "sculpt" your experience. This is even more true of internet enabled communication (which even POTS is nowadays).

These are things that are most definitely underhanded; they result from our trust in government and corporations.

If they do this for simple phone calls, imagine what they would do if they had your full trust and cooperation in financial matters. It is most definitely important not only that there be people that understand how your taxes are calculated, but that you yourself understand how your taxes are calculated, and have input into the process.

Jose
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Re: How would you change the U.S. tax system?

Postby Zamfir » Tue Aug 01, 2017 12:18 pm UTC

I am really confused. I was talking about the first set of tables here.

You talk about using a continuous function to avoid a "spike in taxes owed caused by a small increase in income" .

But those tables already describe continuous functions that avoid such spikes. So it's unclear what you would like to change?

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Re: How would you change the U.S. tax system?

Postby Zohar » Tue Aug 01, 2017 12:55 pm UTC

jewish_scientist wrote:
Zohar wrote:Regarding your third (fourth) point... on different domains.

I am really confused. I was talking about the first set of tables here.

I think you might be confused about what a continuous function is.
Very broadly, a function f is continuous at point x if small changes in x cause small changes in f(x). A function is called "continuous" if this is true for any value x that you choose.

Or, more intuitively and for the purposes of the types of functions we're talking about here, a function is continuous if you can draw its graph without lifting your pen from the paper (I know this isn't accurate but it suffices for these purposes). In the case of the tax brackets, this is definitely true. For example:
f(9324) = 10%*9324=932.4
f(9325)=10%*9325=932.5
f(9326)=932.5+15%*(9326-9325)=932.65

And the graph for this function looks like this (yes I have some time, why do you ask?). I didn't go all the way to the top bracket because reasons:
Spoiler:
tax.png
tax.png (10.74 KiB) Viewed 2253 times


What you're objecting to, I think, is a function that's defined differently on multiple domains - "from here to here, it's defined in this way. From there to there, it's defined another way". There's nothing wrong with having such functions, they're incredibly useful and easy to program, and they appear in mathematics quite often.
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Re: How would you change the U.S. tax system?

Postby morriswalters » Wed Aug 02, 2017 12:14 am UTC

jewish_scientist wrote:This happens because every person trusts that the other persons will do their jobs correctly. As long as accountants exist who understand specific niches of the tax code, there should not be any need for individuals to understand how their taxes are calculated.
What gives you any reason to believe that accountants understand the law? Even when everyone is doing everything as well as they can do it, it is possible to do it wrong. It's why tax disputes end up in court. Give me a good Lawyer and Accountant and the question of legality can take years to establish. For some the tax code isn't fixed, it's in a constant state of negotiation. Ask the empty suit. The tax code is complex because we take one tool and do a lot of things with it. And it's why the question is always under discussion.

You seem to have a strange idea about trust, perhaps I misunderstand the point. I don't trust anybody to do anything right, manage people and it gets pounded home to you early and often. It's why everything, with reservations, is organized hierarchically. I trust people only in so far as I can check on what they are doing personally. If you don't understand what your accountant is doing then you are an idiot wearing a sign that says kick me. You can only know if a person is trustworthy is by constantly testing testing them.

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Re: How would you change the U.S. tax system?

Postby arbiteroftruth » Wed Aug 02, 2017 4:08 pm UTC

morriswalters wrote:I don't trust anybody to do anything right, manage people and it gets pounded home to you early and often. It's why everything, with reservations, is organized hierarchically. I trust people only in so far as I can check on what they are doing personally. If you don't understand what your accountant is doing then you are an idiot wearing a sign that says kick me. You can only know if a person is trustworthy is by constantly testing testing them.


Guess I better stop driving over bridges then.

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Re: How would you change the U.S. tax system?

Postby morriswalters » Wed Aug 02, 2017 5:13 pm UTC

Cute but irrelevant. I don't have to trust them to use them. On the other hand I can use Wikipedia enough to know that bridges fail, relatively frequently. Including one in Minneapolis that killed 13 and injured 145.

Given my knowledge of bridges locally and in general, I know statistically it's unlikely that one will collapse while I'm on it. I trust the RNG, not the bridge. I use a similar form of logic to prevent my self from dying of fright every time a bomb goes off somewhere, while other people prostate themselves before the the RNG crying. Failing to understand he has no memory and can't remember their tears. Holy Momento Batman.

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Re: How would you change the U.S. tax system?

Postby arbiteroftruth » Wed Aug 02, 2017 5:40 pm UTC

Seems to me everything you just said applies equally well to accountants, which would reduce this to a semantic disagreement about trusting the RNG vs trusting the bridge/accountant.

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Re: How would you change the U.S. tax system?

Postby morriswalters » Wed Aug 02, 2017 6:21 pm UTC

arbiteroftruth wrote:Seems to me everything you just said applies equally well to accountants, which would reduce this to a semantic disagreement about trusting the RNG vs trusting the bridge/accountant.
It does. And you could say that. Or you I could argue that I don't have trust at all, and that in situations where something I need, is not under my control, I look for indicators. BBB, social networks(with some very severe limitations), arrest record, and so one. References are nice as well. Statistics are really good. And in the case of accountants I would watch the money, to attempt to detect if they steal. The RNG is remorseless and unbiased, if I can keep my my house in order. It will predictably give me a measure of my risk. I wish I had learned this earlier than I did.

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