Globalization of wealth is a result of treaties between sovereign nations.
But if so much wealth is hidden and not tied to each nation's fate, those with the most power and influence lose the connection to their compatriots.
This has led to the brittleness of the current international order. Since the fall of the USSR, national treaties no longer bottom out at the self-interest of each countries' residents. We are trusting a legal framework that has had its foundation severely degraded over the past 30 years.
> Globalization of wealth is a result of treaties between sovereign nations.
I think this is a questionable causal relationship. Globalization of wealth happened due to improved banking/monetary infrastructure; yes, governments giving permission for this to happen was a practical prerequisite, but I wouldn't say it's a "result" of international politics.
In fact, as we can tell from another article currently on the front page (about Chinese bitcoin miners), globalization of wealth eventually happens whether governments want it or not.
Accessibility of global wealth seems more important.
In the age of sail, I'm sure one could have stashed gold in some backwater city, which would have hidden it very effectively from any government. But then you couldn't use it.
The international banking & legal systems now enable those with means to both keep wealth away from governments while still maintaining access to it for practical purposes.
It is an interesting data point. If it is consistent then increasing tax compliance on the 1% would be sufficent to boost overall tax revenues by close to 4%. (caveat they just decide to become Canadians :-)
This is exactly where we're at. The CBO has estimated that every additional dollar spent on IRS enforcement would yield an average $2 of additional revenue, increasing to over $6 by 2018 [1]. But certain political factions (can you guess which ones?) have, as a matter of policy, intentionally starved the IRS of funding to prevent them from enforcing compliance and collecting taxes.
I guess the thing that worries me is how would I know that the increased enforcement budget would actually go towards the ultra-rich? I make a middle-class income, not enough that it really makes sense to hire an accountant. The tax code is complicated enough that I'm sure I screwed up somewhere doing my taxes --- I just try to muddle my way through it as best I can year after year. I'm sure the IRS could get more money harassing thousands of people like me instead of a single ultra-wealthy individual since we don't have the resources to fight the IRS but the ultra-wealthy do.
I really understand your frustration and uncertainty, and to be frank; you don't know for sure that the IRS would chase after rich people.
But let me float this: Guess which parties/party wanted the tax code that complicated to begin with? The first step to fixing it would be to not align yourself with the ones who caused the issue.
Simpler tax code would make it less worrysome for regular plebs (us) to fill out our taxes, meaning the lower/middle class that pays their taxes would ensure they weren't in danger, and IRS would have an easier time chasing down tax avoiders.
The people who complicated the tax codes and also wants to uninsure tens of millions of people to save a few bucks for rich people won't help you.
The problem I have with the tax simplification folks is that they're generally disingenuous about the fact that they're proposing moving from a progressive to a much flatter tax code. Or at least ignorant about the differences.
I'm sure a lot of the language and ideas they're parroting are coming from conservative talk radio, hence the blind spots. But it really soured me on the US tax simplification debate.
> The problem I have with the tax simplification folks is that they're generally disingenuous about the fact that they're proposing moving from a progressive to a much flatter tax code. Or at least ignorant about the differences.
Whole heartedly agree. Simplification and flatter tax code should be separate discussions, with separate conclusions.
1. IRS determines the median for personal income (total household income divided by household size), and publishes it no later than January 1.
2. Your taxable income is your household income minus the published median from #1 times the number of people in your household. If this is less than or equal to zero, pay no tax.
3. Those with positive taxable income pay x% of that amount as tax, with x set according to the requirements of the previous year's budget, but not to exceed a statutory limit of y%.
If you take the median income as a proxy for spending, this tax thus approximates a flat tax on the annual increase in household wealth.
The thing is, you can greatly simplify the tax code and still have progressive tax brackets. Looking up the total amount due in the back of the tax booklet (or more realistically having software calculate the total due) is the easy part of doing one's taxes.
Cut out the various deductions and credits and additions to income etc. to make things simple. Then calculating tax due becomes a simple table lookup or addition of amounts from multiple tables. 3rd grade math. We don't need to set a single universal x% tax rate to make things easy.
Consider that the only reason we have "tax brackets" is because many people apparently cannot be relied upon to calculate the results of an intractably complex polynomial function such as f(x) = 0.40x - c or a choice function like MAX( f(x), 0 ).
I'm all in favor of a vastly simpler tax code, but I'm also in favor of a vastly more progressive tax code. These two things aren't in opposition to one another.
At this point a flat income tax rate would be more progressive at the top end than the current system, especially if you wrap in medicare and social security taxes. Maybe start with a flat tax and move from there.
A flat tax by its vary nature and NOT be progressive. And even with how broken the tax code is, a flat tax still places a totally unfair burden on the poor.
If you take 20% of 20,000 bucks your tax on me is 4k which only leaves me 16k to live on (You would be extremely poor in US). 20% of 200k is 40k, which leaves me 160k to live on.
Return free filing, the ultimate in tax simplification, is also opposed by the politicians who claim to be for tax simplification. You could set up a progressive tax code in a way that requires computing non-trivial integrals, but as long as the math is done by the IRS, it would still be simpler than what we have today.
I suppose the market driven way would be to put IRS tax inspectors on commission. Perhaps above a certain amount per target; maybe for every extra dollar above six figures they bring in from "one" [1] individual, they can keep half.
[1] Where "one" is a bit of a fuzzy concept when you're dealing with multi-millionaires hiding their wealth through various shenanigans.
Agreed, I know the feeling well. It's a crazy mess of a system where people with very straightforward sources of income and deductions end up unsure every year whether they've done their tax returns right. This is why other countries just fill them out for you.
Well income tax was magically mandated without any sort of discussion so there's that. In the end the question is a question of hard power. If you have none, you are in no position to bargain. IMO giving government taxes that are used for purposes that may not agree with your personal sense of responsibility and morality may itself be immoral, for instance if the government uses your taxes to start wars you want nothing to do with. For infrastructure and education though they are fine regardless. They are always tooting the horns of voting with your dollars, in this case where is the voice of voting with your dollars as to what gets done with your money. /rant.
There's a wonderful old sitcom called "The Goode Life" where one of the characters walks in to the council offices to pay her council tax and proceeds to itemize and declare which services she is unwilling to pay for as they were unsatisfactory...
When you vote, you are not voting for anything or anyone substantial. Party A and Party B have the exact same policies with simply different political tones and groups of elites that they support.
> The 16th amendment was adopted on February 3, 1913.
Yes. 4 years after congress passed the amendment, it was ratified by the 36th state and adopted. In no way was this "magically mandated without any sort of discussion".
But you can also vote in primaries where there's a wider array of candidates. Plus many elections have ballot measures enabling you to vote for or against specific items.
You're just unwilling to admit that your views aren't broadly popular.
Furthermore, he produced videos instructing the viewer on how he avoided paying income tax [1], then sold those videos. For income. That he didn't report.
You are confusing practice, or customary, with technical (constitutional law), which I would include political philosphy and the unalienable rights of man as identified by Rosseu.
If I cannot choose to not pay taxes, then I have been denied the right to choose, then it is a forced subjugation of my free will. Correct would be to give my taxes voluntarily, according to my disposition and agreement with the government.
If you are profoundly 'contra' what the government is doing, then how can you be forced to help with activities that you believe to be deeply detrimental to the well-being of yourself, others, and all life on earth and beyond?
Tolstoy argues this point very well in his book "The Kingdom of God is Within You." He essentially says that if we pay taxes to a government that kills innocents or tortures Arabs their blood is on our (the taxpayers') hands.
If the government is doing something that I find to be deplorable then I have the moral obligation to find a way to avoid contributing to such array of horrors.
> If you are profoundly 'contra' what the government is doing, then how can you be forced to help with activities that you believe to be deeply detrimental to the well-being of yourself, others, and all life on earth and beyond?
Because you participate in society and its infrastructure and services, paid for by taxes.
I'm sure there are uninhabited tundras where no one will bother you.
"Voluntary" is an old-fashioned term of art; it means "you volunteer your version of events to the information to the IRS" rather than "the IRS sends you what they know".
I'm not even joking when I say: I really hope they do. These are the kinds of people who buy into Koch's philosophy (as opposed to Gates' philosophy). Once this country is rid of Dark money, the political system might finally start serving its citizens, and not just its wealthy citizens.
Interestingly enough, if there really is a 30% gap in compliance, then I expect that there is enough money in increased tax collections to take a 1% management fee off the top and fund an accounting & legal organization that would be required to "do the taxes" of the .1%.
Has someone actually proposed that it's a net money gain to cut the budget of the entity that's supposed to enforce taxation?! Sounds like an idea only slightly less stupid than reducing the budget of the police so as to reduce crime...
The usual story is that the incorporated municipality dissolves its police department and then contracts with the county sheriff for less money. Then reported crime goes down. This is in large part because there was not a crime problem in the first place, and the local police were simply issuing citations all day, to collect the fines that paid for the police to issue citations. A more minor component is that smaller crimes may go unreported because it is less convenient to report them.
It only makes sense to cut the budget of the tax enforcement agency if it costs more than one unit to collect an additional one unit of taxes, which is currently not the case for the IRS.
"It only makes sense to cut the budget of the tax enforcement agency if it costs more than one unit to collect an additional one unit of taxes, which is currently not the case for the IRS."
You are assuming that the only function of enforcing taxes is to get money (1).
We can presume that honest taxpayers would feel like fools if taxes were not enforced in a assertive way. That would be a thread to social cohesion.
(1)- In fact, I dispute that the function of taxes is to get money, but I will leave that polemic discussion for other day.
I would naturally assume that if it cost the IRS more than $1 to collect a marginal $1 in revenue, that the purpose of the agency would be to intimidate and terrorize taxpayers, and would therefore call for the agency to be abolished, rather than just have its budget reduced. Additionally, I question the utility of taxes that cost more to enforce than the revenues they bring in. Those are things that the public should not acquiesce to, anyway.
My tinfoil-hat self adamantly asserts that the purpose of the income tax is not to collect revenue, but to control the side-effects to the inflationary monetary policy that is the real source of revenue for the federal government. That self somehow sees a significant difference between spending money after it was collected via taxation and spending debt that is later discharged via taxation. Whenever that self starts ranting about the great Keynesian confidence game, my other selves generally cram it back into the penalty box for a while.
You think that any attempts to prevent tax evasion are tyrannical? Why even have laws if you're not going to bother enforcing any of them?
The idea that the government's primary means of paying for things is printing currency is perhaps true if you just stepped out of a time machine from the early 19th Century, but it has little to do with how the government works today. If that were actually how the government ran inflation would be well into the double digits (if not higher), as you could see by referring to any historical examples of governments trying to do this.
Sometimes, taxes are imposed as a substitute for a law, especially when such a law would not be possible.
For instance, poll taxes were routinely used as a substitute for laws banning black Americans from voting.
Attempts to punish tax evasion that are more costly to pursue than the revenues generated from the tax being evaded are tyrannical. The cost-benefit analysis makes it clear that the tax in question is a lever to control people rather than a means of raising revenue for some particular purpose.
Please don't try to argue with my foil-hatted self. I have tried it on occasion, and it just never works. Better for me to just cram it into a locked compartment of my brain, and only let it out for entertainment purposes. But even my more rational personality components can detect the odor of trimethylamine in the Federal Reserve-Treasury relationship.
Perhaps it is because I can still hear foil-hat tapping on the pipes when it is locked up, but the manner in which the government measures inflation and publishes inflation statistics is not entirely honest. Look into price indices [0], and in particular, the price indices that US policymakers use [1] [2]. It is clear that they choose to use measures that understate real inflation. Furthermore, they occasionally change the method of calculation, without putting hard breaks in all the time series graphs. That can cause the index to further understate inflation. That isn't to say that you should believe the favorite sites of fearmongers and gold-hawkers (i.e. ShadowStats) either. Be skeptical of anyone trying to tell you what your money is worth.
Trying to track money through the government is more than a full-time job, and would be a boring and infuriating hobby for an amateur. As such, few people can perceive how their taxes become... well, anything. In that environment, tax evasion frequently becomes rationalized as a victimless crime, and political corruption grows in the spaces where no one ever looks.
Transparency and open records would go further to prevent tax evasion than any number of law enforcers hunting down those people that attempt it, as would simply dropping those taxes that cost more to collect than they bring in.
If the money were spend by market forces rather than government dictate, the funds that go to hire IRS bureaucrats would instead go towards more productive ends, like the production of food or snowmobiles. In other words, instead of wasting human productive capacity on bureaucracy, the people currently employed by the IRS would instead have to find jobs useful to society.
It's not zero-sum at all. The amount of money is zero-sum (obviously), but net social utility isn't zero-sum. That's the point.
Apparently there is at least one company that chases down artworks stolen by the Nazis and returns works with the rightful owners to recover their items for a fee.
Say "wealth tax" near Buffet and Gates and watch them have quite a different reaction. Income tax rates have little effect on the already-wealthy because most of their money is not distributed in the form of a wage or salary; rather, it is stored in various types of financial vehicles that are already tax privileged. To the extent that this wealth is not held in stock, accountants set up other types of tax-privileged holdings.
Whenever a prominent wealthy person is talking, be aware of the PR necessity to not appear as if they are hoarding their wealth, or as if they are uninterested in sharing. Buffet and Gates are no doubt keenly aware of this necessity.
From the perspective of a Buffet or Gates, it is wise to publicly advocate for a tax increase that has little or no effect on your personal wealth, potentially targets up-and-comers who are currently making good money through their small-to-medium business ventures and may some day pose a threat to your interests (weakening them by confiscating more money from them), and keeps the public on your good side because they can point at you and say "There is $FAMOUS_RICH_GUY, and he knows that being greedy is bad."
"Income tax rates have little effect on the already-wealthy because most of their money is not distributed in the form of a wage or salary; rather, it is stored in various types of financial vehicles that are already tax privileged."
The problem with this line of thought in it's current implemenation is that the top marginal income tax rates are very, very, very low in comparison to the "truly wealthy" people that you are referring to.
You only have to make (roughly) $400k[1] in the US to hit the very top federal bracket of 39%. That's hardly scrooge mcduck swimming in his bank vault. It's more like middle sized contractors, and (lower echelon) doctors and dentists.
So if you are a proponent of substituting income taxes with wealth taxes I would hope you are also a proponent of drastically raising the income brackets for very, very high tax rates to avoid hitting people that aren't "actually wealthy" (your definition).
> Income tax is the wrong way to tax the extremely wealthy.
No, it's the right way.
> They make most of their income from capital gains, which is taxed at a different, low rate.
Capital gains taxes are income taxes, they just are at a lower rate to deliberately favor holders of capital. But there's a simple and obvious way to correct that; apply regular income tax rates to capital gains [0].
[0] there is actually a good reason for special treatment of income earned over a period of greater than one year in a progressive annual income tax system, as doing otherwise penalizes punctuated, non-repeatable income; but you can address that by either (or both) of allowing income to be recognized in advance for tax purposes and allowing income to be deferred for tax purposes for a period after it is earned (neither of which, managed properly, provides any avoidance opportunity for regularly-recurring income.)
"Income tax is the wrong way to tax the extremely wealthy."
That's my point.
The top income tax brackets are designed for, and sold to voters as, appropriate rates for the "super rich".
So to whatever degree you feel this is a bad tool for that job, I would hope you'd recognize that, therefore, the income ranges for those very high rates are not appropriate.
As I pointed out, those top rates aren't for millions or tens of millions of dollars of income - they are for (roughly) $400k.
Short-term capital gains are taxed as regular income. Long-term capital gains are taxed at a significantly reduced rate (highest income tax bracket (39.6%) pays 20% on long-term capital gains).
Quick google search: The median annual Dentist salary is $146,434, as of April 27, 2017, with a range usually between $130,761-$171,212...
If the dentist owns a particularly successful office of dentists, they're not just a dentist, but a small business owner, so they could be making more money (paid by dividends rather than salary).
An established single dentist practice will take in over a million dollars per year. After paying secretary and dental hygienist salaries, rent, and other business costs, that comes to more than $400k net.
I appreciate the point of view, but in this conversation specifically, and the Economist article specifically, the discussion is around evaded taxes of the wealthiest individuals. By definition an 'evaded' tax is one that is legally owed, but has been not paid illegally[1]. So without a tax increase, simply increasing compliance, you increase the actual tax revenue collected.
[1] Not to be confused with 'sheltered' where the tax was not paid but through a legal loophole.
Another thing to keep in mind is that the top 1% in the US (>$428 AGI) earn 19% of all AGI and pay 38% of all income taxes. The top 1% pay more in taxes than the bottom 90%.[1]
The top 1% also own more then the bottom 90%. 35% of all the wealth, compared to 28%. (Going by reported numbers - the reality may be worse.)
Their wealth also tends to stay with them. Bill Gates isn't planning on taking out a reverse mortgage for his house anytime soon.
In our debt-based society, wealth flows up. The average person spends most of their life paying interest to someone, in exchange for the ability to work, a place to live, and a vehicle for getting them from where they live to where they work.
People who don't need to go into debt for those three expenses get to grow their wealth, and pass it on to their children. People who do have to go into debt to do so tend to die, and pass on little to nothing.
Yes. That's the definition and social contract of a progressive tax code.
E.g. "You probably screwed over a lot of people to get where you are, or at least leveraged their work while reaping most of the gains. As well as being able to afford to pay more (given that basic necessity costs don't scale with income). So you should pay a larger share."
Actually, Bill Gates has directly called for a capital gains tax increase (http://www.cnbc.com/2016/05/02/bill-gates-calls-for-higher-c...) -- I assume capital gains would be most of his current taxable income at this point. Capital gains taxes are of far more concern to mega-rich people and big businesses, compared to small and medium businesses (which can take advantage of some capital gains exemptions specifically designed for them). So in his case at least I don't think this is reflecting some nefarious hidden agenda.
Just out of curiosity, is there anything Gates/Buffet could do that you wouldn't approach cynically, i.e. that you would assume they're really doing it for other peoples' benefits rather than their own?
I think it's always valuable to analyze the cynical angle and potential game. As a sibling commenter stated, you don't get to Gates or Buffet level without good awareness of the game. In most cases, you can hardly get up more than one or two rungs on the corporate ladder without it.
I don't necessarily impute any of these motives upon Gates or Buffet per se. I just think it's important to be aware of how such actions align with their interests. The subjective judgment of each man's true motives is left to the reader.
I will say that if Gates and Buffet truly believed that 40% of the wealth they accrue each year could be put to better use by the USG than themselves, they could put their money where their mouth is and donate that portion of their assets to the U.S. Treasury. [0] Instead, they seem to keep that wealth within vehicles that they can control.
I don't have any quotes in memory from Gates, but your position of "Buffett is just trying to get good PR by advocating tax changes that wouldn't effect him" doesn't mesh with his quotes to the effect of "It's unfair I pay less effective tax than my secretary."
What exactly do you seem him advocating that has an ulterior motive?
I think it's a calculated illustration. Power is all about making calculated gambles like that. If everyone was bare with their intentions all the time, it'd be easy for their enemies to bring them down.
The fact of the matter is that any type of change to the tax status of a significant asset is going to have far-reaching implications and plenty of people sticking their hands in the pot to try to make the outcome favorable to themselves.
A puff piece that features one of the most-conspicuous richest men in the world suggesting a tax hike against himself is just throwing a bone to the dogs; it's fodder that keeps Berkshire Hathaway and Buffett in the news and it makes the Buffett/BH brand more recognizable, likable, and personable, which are very important qualities.
It also gives him an anchor to point to if he ever needs to negate bad press. He can say "Look, I have a track record of advocating for selfless causes. What kind of greedy billionaire would get on TV and ask for a tax hike? You wouldn't see Donald Trump do that! The things that are causing my bad publicity are not actually bad, they're just misunderstood."
When people hear "tax hike" they think about it in relation to themselves, i.e., a hike on wage taxes. Beyond PR interest, the ulterior motives would be a) increasing the tax rate on people who are having good years in their small businesses, so that the growth of their nascent empire is stymied, lest it someday pose a challenge to BH's interests; and b) many of BH's major holdings are closely linked to government activity, things like railroads and utility companies. More money to the government = more money to BH, and this good PR makes government employees more favorable to Buffett/BH since he is not demonizing the thing that pays their salaries (taxes).
It's convenient to assume that people are honest and straightforward as long as one remains naive enough to believe that. But with something as complex and interconnected as BH and Buffett, nothing occurs in a vacuum. Buffett's private thoughts remain private. He knows when he is on the public stage and he certainly knows to calculate the consequences of his actions there. To deny that this is significant is to deny the purpose and value of Public Relations completely.
I'm not denying your points. It just seems like you're torturing the facts so that Buffett is an exemplar vs looking at things more objectively.
> most-conspicuous richest men in the world
You mean the guy who still lives in a $600k house in Omaha [1] and briefly owned a $5.5M vacation house in California?
The guy who donates ~$2.8B [2] in Berkshire stock to charity annually? Who has said he does not plan to pass down an inordinate amount of wealth to his children?
These are facts. And they don't jive with a narrative of "He's doing all these things just to make more money."
A valid point becomes lesser when you have to perform gymnastics to make it fit to the person you've chosen. There's plenty of people who are better fits for your narrative: Larry Ellison, the Koch brothers, the Waltons, the Mars's, Soros, etc.
You're proving my point. Buffett is conspicuous due to his legend, not due to his ostentation. His legend would be harmed by making unpopular statements about tax policy, or by adopting a visibly-ostentatious lifestyle, or by a variety of other things that don't play well in the media. Buffett's legend is a valuable asset that he does not want to damage.
Call it "mental gymnastics" if you want; I just call it analysis. Every approach has pros and cons and I make no assertion about the true status of Buffett's motives. I just believe it is important to understand how these moves can work.
In competitive endeavors like business, it is wise to visualize the exercise as a game of chess. If I move to A5, that opens B4-C4 for my opponent, and opens to me D6-F6. My experience is that often, those who try to discourage such perspectives are merely trying to maintain the edge they get by having opponents that aren't aware a game is being played at all.
Enshrining placidity and complacency as social values only allows the sharks to operate more freely.
> I make no assertion about the true status of Buffett's motives
That's the "I'm not saying he's a rapist, I'm just asking the question" defense, and it's bullshit. Every single one of your posts in this thread is along the lines of "If Gates and Buffett were profiteering assholes, they would do {thing they do} for {evil reason you ascribe to it}."
So by duck typing, you're absolutely saying they're profiteering assholes.
And then you throw out strawmen like this to support your point:
> I will say that if Gates and Buffet truly believed that 40% of the wealth they accrue each year could be put to better use by the USG than themselves, they could put their money where their mouth is and donate that portion of their assets to the U.S. Treasury. [0] Instead, they seem to keep that wealth within vehicles that they can control.
I understand your point and I don't really disagree that passive accusations are irritating. It seems like the speaker is trying to weasel out of responsibility for what he's saying. All I can say is that it's not my intention to do that in this case.
IMO people are too quick to accept something at face value if it's politically or rhetorically convenient to do so, and I wanted to get more people thinking about the potential subtexts of statements made by the world's most conspicuously wealthy men, especially when these statements are oriented toward political matters.
Just to clarify, Buffet and Gates didn't climb a corporate ladder. You are right, though, that the thinking is different and theirs is most likely atypically well-refined.
Cynicism comes into its own when that sort of money is involved. Practically it isn't possible to become build that sort of wealth without being super-aware of the financial outcomes of your decisions.
It isn't safe to take someone at face value once they can buy a PR firm without blinking.
"It isn't safe to take someone at face value once they can buy a PR firm without blinking."
Well I agree with that. But it seems like you're saying that there's literally no evidence in the world that can convince you that your cynical view of them is wrong, which is a pretty hard position to hold IMO.
>Income tax rates have little effect on the already-wealthy because most of their money is not distributed in the form of a wage or salary
No, the fact is we differentiate between salaried "earned" income and tax it much, much higher, than investment "unearned" income. It's a very explicitly designed system that encourages stuffing the left overs into real estate, stocks, bonds rather than take the risk of starting or growing a business.
This is not a John Rawl's country, where we believe in "the veil of ignorance" thought game. If it were, there would be no such thing as tax free gifts, and low or non-existence inheritance tax.
Only IPOs transfers cash directly to a growing business, all other stock trades are shareholder trades, the company sees none of that money.
Corporate bonds do help grow businesses, but these are dwarfed by government bonds, which are just another way of transferring money from the vast majority of living and future generations, to a tiny number of current living people.
The part about trading not mattering to companies isn't true. One, companies issue additional shares after IPO. Two, the fluidity and likely future viability of the market affects IPO feasibility and price. Three, stock price affects employee compensation. Four, companies that own shares in other companies benefit from liquid markets just like retail investors.
Corporate bonds also trade on the secondary market and that has similar consequences.
My assessment is also very strongly based on the actions and financial support both elements have provided. The Kochs, and most other major Libertarian supporters, ultimately back projects which favour a return to feudalism, though they rarely state it this baldly. Gates has tended to support instutions aligned with general liberal democratic principles.
That is inconsistent with the country's founding: the political system, as founded, is supposed to serve wealthy citizens first. It's a country founded on class, founded on making profit. You are white, you have land, you're a man, then you have a political voice. If you lack one of those, you cannot participate. And it was that way for a longer period of time, than it has been since womens' suffrage and the civil rights act of 1965.
Despite being more democratic today than its founding, there's still present a substantial minority who appear to believe in the proper existence of aristocracy. Family name, bloodline, class, are real things, they define who is better and who is inferior. Better people have more money, and they can buy things inferior people can't, or they can buy better versions: privacy, education, health care, justice, political representation, police protection, tax avoidance. Those things are products.
What most people are trying to do is find a civil way of playing reasonably fair. But aristocrats think money buys everything, so when catastrophe comes along to equalize things, they never see it coming.
https://www.theatlantic.com/business/archive/2017/02/scheide...
Grassroots - socialdemocracy that sprung froms scandinavia but has major partial similarities to alot of European countries pre EU when the public sector was larger (around 10%). Through grassroots people achieved greater impact for the state (as represented by the people for the people) through law, regulation and public ownership ("the greater good").
That change was not brought on catastrophically but incrimentally by the poor working class also even partially by what today would be called entrepreneurs (the liberals of those days) that realised that local companies could gain more by increasing the wealth for the local populace who could then produce more efficiently (win/win).
Anyway, when people impact through the national state they have power, when wealth is shifted from nation to private hands is when the public should start to move. I'm still surprised the reality that could be had by the big short (2015) where moody's et al with rubberstamping actively helps in making that shift happen. It seems like hidden plutocrats have greenlit to jump ship more or less...
What people need to do is to organise, activate and put real pressure on those working for as few as possible instead of as many as possible.
Once real democratic rule has been established through law and oversight (transparency - means disabling some shadow groups in the gov and right outside it) a more egalitarian and utilitarian (efficient) society will spring forth.
Well when you have a substantial amount of the population voting against their economic interest, do not trust the political system to the degree they like hearing autocratic rhetoric like "so called judges" and "do nothing congress" and "rigged elections" and "fake news media" - that sort of denigration of checks and balances in favor of unity executive is totally the opposite of anything grassroots, or democracy.
It's people who have no trust in those things, and just want to go back to a simple life of one deity, one leader, a small bunch of benevolent aristocrats, and everyone else gets a basic job and they just suck it up and like it.
A significant minority is convinced crony capitalism is real capitalism, and the only reason why it doesn't work perfectly is because of government, gays, and libtards. That's the political reality of ~80% of Republicans who still approve of everything this U.S. administration is doing. That may only be 25% of the eligible voting population, but then a bit over 50% of those eligible voters could not be bothered to participate at all. So you have a sizable minority of anti-democratic people who want a weak autocrat to just fix things and de-Obamafy the country. And a bunch of disinterested people. Ergo 3/4 of the voting eligible population.
Perhaps the fact that catastrophe is the only thing leads to increased equality (in dollar terms) is a sign that equality (in dollar terms) is a bad heuristic for net social utility.
> Once this country is rid of Dark money, the political system might finally start serving its citizens
Oh boy, is this idiotic red herring from Indian politics going to get ported almost verbatim to US politics? Yes, I'm sure a max ~4% revenue boost will make the government start behaving properly.
It's worth pointing out that the US model of taxation (US citizens pay taxes on income earned anywhere in the world), as much as people complain about it, completely negates the value in offshore income a la Panama papers.
Sure, until recently you could hide your income in Switzerland, but it was a clear crime -- there wasn't legal grey area.
And yes yes, there are other ways to try to avoid taxation (deductions etc) but this is a really big one that the US doesn't have to worry about.
The unique aspect of the US model isn't that they tax income worldwide - it's that they tax income worldwide on citizens who reside anywhere in the world.
As an Australian who lives in Australia, I have to pay Australian income tax on any income I make from overseas assets as long as I am an Australian resident for tax purposes. This kind of taxation policy is pretty standard as far as I know.
The problems with offshore income are that you can often bury the income in a twisted maze of companies and trusts that are under your control - not that the personal income tax laws of your country don't tax foreign source income.
>It's worth pointing out that the US model of taxation (US citizens pay taxes on income earned anywhere in the world), as much as people complain about it, completely negates the value in offshore income a la Panama papers
What's different about the US model is that worldwide income is taxed while not living in the US. So if you are an American who permanently lives and works in Germany, for example, the American government entitles itself to tax the money you earn in Germany (*in principle, at least; due to exemptions you've really got to be earning $$$$ to pay taxes twice).
Most countries as far as I'm aware would tax their residents based on income earned abroad, provided they are actually residing in said country. The difference is taxation by citizenship vs. taxation by residence.
You will not get taxed twice, rather you will pay part of your taxes in one country and the remaining part, if any, in the other country. You tax rate is the maximum of the two.
You're right, I wasn't particularly clear. My point was more that you'll (potentially) pay taxes in two countries on money only earned while living and working in one country.
US has double tax avoidance agreement with many countries. So if you are a US citizen living in country X, you end up paying taxes to US & X, both. But a reasonable chunk of the "double" tax can be recovered when you file your returns. It's not that bad if you consult a tax expert (good international tax experts are rare, quite a few are misinformed).
P.S. US isn't the only country that taxes you on your worldwide income.
Only the US has the military muscle to do that. And some US citizens are relinquishing their citizenship because of that.
This is not how you fix it. You fix it by a flat tax rate and by not abusing the taxpayer: max 10% tax. Anything over that figure is outright theft.
Tax the rich cheering is just an incentive to tax starve the regular taxpayer (everyone else). The rich, meaning their capital will just move elsewhere.
Part of the problem is unbalanced incentives between tax inspectors and crooked accountants.
If an accountant helps a billionaire dodge taxes he can earn millions of dollars in fees. If a tax inspector exposes the scam he might get a salary bonus worth a few thousand dollars.
I would like to see tax inspectors get paid by commission. If the tax inspector exposes a scam and the government collects $50 million, the inspector gets $2 million. (And to avoid overzealous inspectors, if a tax audit finds no impropriety the inspector forfeits $20,000)
You can neither make 50 Million appear nor can you plant evidence in Bank data that the victims lawyers couldnt tear to shreds. Accounting isn't dropping a joint in someone's pocket
Scandinavian countries have one of the most progressive (meaning, increasing with total assets) tax scales in the world.
Astrid Lindgren, who you might now as the author of Karlsson-on-the-Roof and Pippi Longstocking children books, once was unlucky enough that she had to pay 102% of her income in taxes (yes, paying more than she had earned this year). Things got better since then, but I would totally understand the desire to evade arbitrarily-imposed taxes.
To be accurate, it was the marginal tax rate that ended up 102%, not the total tax rate. Still, of course, that was completely preposterous and the current system is very different, though still high-tax in international comparisons.
It still does mean that she had to pay more than she earned (and so did I, one year — long story). If you call someone part of the payment "tax", and some other "social security payments" or "healthcare pool contributions", it still doesn't change the equation. The difference is purely syntactic.
That's happening right now in Greece: A company that makes 100k Euro in its first year will pay 110k in taxes, as every company and sole trader is required to pre-pay next year's tax every year.
I guess they're expected to go bust, really. Who knows, the small (and large, really) business sector is completely ruined, the market has been crippled by these tax changes. The tax code gets a large overhaul every year, which instills great uncertainty to anyone thinking of starting a business, and many taxes are retroactive.
For example, I've had to pay taxes for funds that were formed in 2016, but the tax starts in 2013, which means that if you completely paid all your taxes for 2015, in 2016 you suddenly owe three years of a tax that was voted in just that year.
A marginal tax rate of 102% will become an effective tax rate of 100% when the amount above the margin line is 50 times greater than the post-taxed portion below the line.
I'm not familiar with the author's situation but standard marginal rate assurances stop applying when the tax rate exceeds 100%.
Isn't a progressive tax system basically the opposite of an arbitrarily defined system? Perhaps you can quibble over where each progressive quantile is delineated, but a system defined by raising taxes on those who make the most is not an arbitrary one. In fact it's a system based on determined reason. Just because you disagree doesn't make it arbitrary.
102% is a wealth tax. If your state gets to the point where wealth is so concentrated it is crippling your economy catastrophically, it might require the extreme measure of taxing so much you take wealth from the rich to fund whatever recovery measures you are taking.
It is an exceptional situation, but its also a possibility. Greater-than-income taxes aren't simply unreasonable.
"It might require the extreme measure of taxing so much you take wealth from the rich to fund whatever recovery measures you are taking."
Punishing capitalists for creating wealth is just stupid. Let's say you live in country X, and country X does this. Generally there are sufficient ways for wealthy people to avoid being taxed at 102%.
However, in the case where they would in fact have to pay such ridiculous tax rates, they would either: 1) stop working and investing and just live off of their capital, to be exempt from the tax (not great for the local economy + because what's the point / why would I risk my money?); or 2) leave (even worse).
Personally I'm not a believer in that wealthy people will easily relocate when taxes are raised, but in this case, I do believe they would. There's a certain cutoff point where it just gets unacceptable and it becomes a no brainer.
I think you underestimate the motivation of successful capitalists. None of the self made wealthy people I know would have be able to stop working, they are driven to make money before anything else. Contrast to myself, who certainly knows how to relax I've never made any money at all and the time I lucked into some, I took years off and spent it.
Maybe in a different society with massively punitive taxation across the board (ie no escape to elsewhere), these people who are driven would be driven to create an organisation that was massive and successful just the same, and their brand would be recognised everywhere but that would be its own goal and the wealth generated would be spread around? I don't know, but its a nice thought..
Such would establish an income level above which it becomes more desirable to reduce one's taxable income rather than pursue additional income. Every additional euro would go to the state, plus a 2% fee for having the audacity to earn more money when you already earn too much.
Assuming there is a deduction for charitable contributions, that's when you direct your accountant to dump any unexpected windfalls into your favorite charity, so that you save that 2%. Or, more cynically, you might direct your company to reduce its dividend and spend some extra money on an executive retreat.
I can see how a 102% marginal rate might seem reasonable to an insane person. But I think the highest marginal rate you can charge without causing unexpected bizarre avoidance behaviors [that may spill over onto other people] is probably 50%.
Weirdly enough, US has had a significant time period with top marginal rates exceeding 90%. Interestingly, GDP growth rates during that time have not been repeated since.
I'm a sane person, and 50% still seems pretty crazy to me. Make a million, lose half. Then there's 10-20% sales tax on everything you buy. The only thing that can be said in those cases: time to move.
But with 50% as the highest marginal rate, you don't lose half if you make a million. You lose half of everything earned above $xxxK, as set by the tax authority.
Yes, I am aware how a progressive tax system works. In most countries the threshold for the top rate is ridiculously low however, e.g. between €50-100k.
So to correct my statement: make a million, pay 35% (averaged out over different tax rates) on the first €XX.000, and then lose half of the remaining €XXX,000.
Most people who make a few million probably do it as a capital gain rather than income - so different tax rules will apply.
e.g. Higher rate income tax in the UK is 40% for income over £45K (to £150K). However with capital gains tax with things like taper relief you can end up paying 10%.
Yes, for people building / buying / selling assets (e.g. entrepreneurs and investors) this generally applies. But your average doctor won't be booking capital gains on his (earned) income any time soon.
Just pointing out that having income taxes that are too high is often counterproductive for society, just because they can easily be avoided by the wealthy. I guess the differentiation (and justification) is mostly a way to make sure the masses who actually use the infrastructure pay more than the one wealthy person who uses it, but don't need it as much.
Well, wealthy people have have, by definition, more assets that need protection by state provided legal, police and security services - so I would say it is debatable that rich people need the state less.
The idea that rich people don't like to pay excessively high taxes, and will avoid doing so if they are able, is not a particularly compelling argument against progressive taxation.
I am not proposing that any nation institute a 50% marginal tax rate. I am just saying that I believe that any nation that tries to go higher than that is guaranteed to have tax avoidance schemes that ensure no one ever actually pays that much, whether those schemes are visible to the taxing authority or not. Some people will jump through a maze of hoops just to avoid a 0.1% tax.
What I'm saying is that nobody would rationally submit to a scheme wherein they do all the work and someone else reaps the majority of the benefits from it. It goes beyond the limits of the human sense of fairness. A 102% marginal tax rate is so far beyond that, I cannot even imagine circumstances that might lead to anyone actually paying it.
And what is the reason for that? People who make more will pay more even with flat tax rate — such is the nature of linear functions. Progressive tax rates, on the other hand, are completely not rational — they are rooted in contempt ("they earn so much, why can't they pay a little more than low-earners?"), which leads to perceived (if not actual) unfairness and enables evasion.
Progressive tax rates are rooted on the indisputable fact that the marginal value of a dollar for someone in the lower 25% of incomes, is much lower then the marginal value of a dollar for someone in the upper 1% of incomes.
People also don't evade taxes because they feel personally slighted. People evade taxes because the ROI on doing so is positive. Because they can, and because they won't go to jail for it.
> the marginal value of a dollar for someone in the lower 25% of incomes, is much lower then the marginal value of a dollar for someone in the upper 1% of incomes.
Did you say that backwards? The value of a dollar to someone in poverty is much higher than the value of a dollar to Bill Gates.
I've slowly come to realize through personal interactions that a significant portion of the people who complain the loudest about taxes don't really understand them. Namely the two topics that came up in this thread.
1. The difference between marginal tax rate and effective tax rate.
2. The key motivating reason for a progressive tax policy vs. a flat tax.
No It's not true that she paid more than she earned. Her marginal tax rate was 102%, this is extremely different than her effective tax rate being 102%.
It's still an incredibly high marginal rate, but is nowhere near as crazy as the implied 102% effective tax rate.
China is willing to do it, as well as capital punishment for fraud. IMO this just transfers more power to politicians. There are more laws than anyone could ever read or count, anyone whose affairs are that complicated can be jailed at any time so it becomes purely political -- would Trump chose to arrest the same billionaires as you?
Yes. Selective enforcement of law, especially esoteric or procedural laws that often apply in white-collar crime, is widely used and under-recognized as a potent political weapon.
Most people sounds like overstatement. Personally the idea, "to give your child any money as a loan and then let the child claim those assets as his or her own income or saving [...] in support of a loan application," strikes me as obvious fraud. Without data, I would doubt that most homebuyers follow this practice.
I think the author's argument wasn't that this practice is not or should not be a crime, but that the potential criminal penalty - 30 years! - is far too high.
If you're a billionaire in Russia or China, you only get punished if A) you piss-off/embarrass the leadership or B) the leadership wants to steal all your wealth.
Tax avoidance is not a crime, though. You've just found a way to not pay as much tax as the state would like you to, but you aren't obligated to maximize your taxes.
The Economist article only mentions tax evasion, which is a crime, not tax avoidance. They write a decent number of articles about this sort of thing, so I'm assuming they got their terminology right.
There's a white-collar crime investigator who has a sign on the wall of his office/interrogation room: "If you're here, you're not as smart as you thought you were".
Plot twist: Commercial jails suddenly lose their funding, but a billionaire's family buys them all up in the nick of time. Only one inmate is lost in the confusion; his lawyers claim that he may also be a victim of identity theft.
This is about tax-evasion. While it's often difficult to disentangle the two activities, continually referring to tax dodging (or tax avoidance) is unhelpful and simply wrong. Every single sensible law-abiding taxpayer seeks to avoid and dodges taxes such that they arrange their affairs to minimize their tax bill. Revenue authorities work within the appropriate legal framework to maximize the tax they extract from individuals and organizations.
Well, because a footballer is most likely getting paid under contract, but not as a salary - so it's their responsibility to pay tax on the money received.
You can do the exact same thing extremely easily - just set up a company in your name(10 minutes of work here in UK) and work as a contractor - then it's your responsibility to pay income tax, it is not(and I would argue it cannot be) taken from your payments, because as a contractor you can always subtract your expenses from your income so the actual tax to pay would be difficult to calculate without knowing all details.
The problem there is advertising, and jurisdiction for taxing "image rights".
E.g. Cristiano Ronaldo pays taxes in Spain for his salary. His income from advertisers using his mug all over the world is another story - the Spanish state wants dibs on it, his accountants say that is not "work" performed there.
We still do not have a handle on the Mickey Mouse and superstar system.
When you're Neymar and you get paid for a toothpaste add in Japan, you get 3 countries possibly arguing about that revenue.
Hence Panama, at least until you figure it out.
Demonetize, tax on consumption, provide rebates to the impoverished. so many problems will be solved. Consumption based economy will go away (destroying the planet, so that's good) and industry will focus on basic necessities that aren't taxed as much - food, shelter, clothing, medicine.
Roughly, "capital" is the class of people who make most of their money by investing money they already had, and "labor" is people who feed themselves by selling their time working to others. I'm guessing you knew that but want to challenge the categorization?
Do you mean fix as in "repair" or as in "hold in place"? This usage is ambiguous.
The ruling class already, by definition, determines the taxation amounts. Society is surviving like this. Your assertions to the contrary are false. QED.
I do agree that taxes cannot be part of morality. I think it is crucial to differentiate between tax evaders who are breaking the law and tax avoiders who use legal means to reduce their tax liability.
There is a hidden assumption in this argument that there must be a "ruling class". That means you assume that democracy is literally impossible - that it is impossible for everyone to have equal votes and thereby protect their interests. That's not a small assumption!
What's to stop someone else from saying "actually instead of the ruling class, taxes will be set by whoever is the absolute dictator." Well, that assumes there is one. What justifies that assumption? Assuming there must be a ruling class is equally mistaken, in my opinion. There simply isn't one. Everyone votes, rather than some "class".
How to maintain the status quo? If you cannot appease the general public, there will be revolution, and the rich will not stay rich for long.
But how to appease them? Offer them a vote, create the concept of democracy.
Then What? Control the figure heads. (Think dirt, bribery, monetary influence both directly and indirectly).
Immediately, the problem is reduced from impossible to difficult. From controlling millions/billions of people to controlling dozens. And with money, difficult things become less difficult.
All that to say, off course there is a ruling class (think dynasty like Rothschild etc). You have to to think on a macro scale for this. They rule, not directly, but by influence. And we will never see them operate, by design. In the real world, money buys influence, wherever you are and whoever you are. I think the OP was referring to the super rich, who are able to pull politicians strings.
The vote is only one aspect of democracy. The public get to vote in order to feel appeased, but its more than that. The rich get to influence in order to get richer, and the politicians get to feel powerful. Off course, the general population are not supposed to know about that previous sentence.
Now off course, we see the interaction between the public and the politicians (well, except for Theresa May yesterday), in fact, this is usually highlighted to maximize the public's feeling of appeasement by building a certain "democracy hype" (can be seen before most elections).
In reality, democracy is just the "peaceful" amalgamation of all three aspects:
- public feeling good. Fooled, but working the hamster wheel as hard as possible trying to amass EARNED wealth.
- politicians not feeling good, but powerful and usually richer.
- mega-rich feeling good, powerful and richer.
Which then leads to there being those 3 types of people.
But remember where democracy came from: the no-aristocracy, one-man-one-vote model of democracy is primarily a child of the French Revolution. (The US revolution created a cozy oligarchy, complete with property qualifications; democratization came later.)
Prior to that revolution, the only way to join the French aristocracy was to be the child of an aristocrat; no amount of amassed wealth could make you noble, and the French aristocracy had even persuaded themselves that they were biologically superior to the commoners. (Hitler and Himmler really liked that notion; they even envisioned turning the SS into a new ruling aristocracy, not least for France.)
The French Revolution blew the lid off all this, and made it possible for earning wealth -- in one generation or several -- to be enough to rise in station. This was always possible in England, and this is probably why the UK has never had a French-style revolution: no "insurgent elites," no men and women frozen out of the circles of power despite being qualified to enter.
So democracy isn't a sham; or, at least, it wasn't originally one. There was a time when all of the factions you describe -- working stiffs, professional politicians, and the ultra-rich (especially rich Jews!) -- were more or less genuinely oppressed, and settled on democracy as a solution that gave all parties at least some of what they wanted.
(This assumes a traditional reading of the French Revolution, of course; I've seen a revisionist reading that it was the work of a small elite that never enjoyed popular support. But I'm skeptical of this; if popular sentiment was really anti-Revolutionary, why did France have so many more republics?)
I personally couldn't care less, but it is contrary to HN guidelines:
"Please don't sign comments; they're already signed with your username. If other users want to learn more about you, they can click on it to see your profile."
EDIT: you updated your comment considerably since my reply! The below was a reply to a simpler version of the parent comment. I don't disagree with what you've just written.
-
Before edit:
-
So why don't the ruling rich make it so that up to $100,000 everyone pays under the current tax regime, but any income over $100k is taxed at 0% (since you've already fully paid your share to the country, i.e. on the first $100K), meaning earning $500K or $5M per year gives the same tax burden?
Nobody would vote for such a tax regime. That's why we don't have it.
Your idea idea that there is a ruling class ("dynasty like Rothschild etc") that can do whatever they want is simply not true. The country is much more democratic than that. I might as well suggest that there is a secret absolute dictator who can do whatever they want. (Also not true.)
I'm not saying it's perfect, but it's pretty obvious there isn't a ruling class even close to being able to set tax rates for themselves - or they would do so. Why do you think they don't? They can't.
I think it's more insidious than that. Of course it's not done on earned income. That would be too transparent for the general public to see. Instead you create a lot of financial instruments with varying degrees of complication that all have rules for avoiding taxation while still providing yields. Even better if it takes expensive and exclusive accountants and lawyers to conceive, establish, and protect these.
This way you get to give appearance of the wealthy doing their part in a progressive tax while really only subjecting a small or zero amount of their wealth to it.
well I don't disagree with you, but I don't know that I can agree to using the term "ruling class". Does every set of influencers constitute a ruling class?
So, purely for entertainment, how much money one needs, on a population on a billion in developed countries, to influence the democratically elected leaders in 20 countries?
Also a lot of tact. If you just leave a check on somebody's desk, you're calling him a crook, and few crooks enjoy being called crooks; it works better to hire a politician for a speech somewhere, or offer him a seat on a board of directors or a well-paid job with a charity when he leaves office, or put in a word on his children's behalf with the director of an exclusive private school, or something like that...
The Saudis make an absolute art form of this, acting as a patron to the whole of DC. There are some memorable books about this.
There's an old folk belief in the Anglosphere, that the rich are less corruptible than the poor. (In 16th-century England, the legal definition of "an honest man" was one who had an income from land and investments of ten pounds or more: maybe equivalent to $100,000-$400,000 today.) This belief isn't true, at least not most of the time; but the art of deniable bribery gives a hint of where it came from.
I found the logic somewhat appealing (if I understood it correctly): You should always pay as little tax as you can get away with, because the true dirtbags of the world certainly are. Since money is a form of power and power is relative, if you willingly pay more taxes than the dirtbags you are willingly handing over power from you to the dirtbags year after year. Eventually you will have contributed to a situation where only dirtbags have money/power and we will live in an equivalent of pre-revolution France.
Man, is this a tragedy of the commons, but I get the thought process.
Could a rule like "Everybody must go up to the 12th floor, jump out of the window, and die." be part of morality? No, because that would be self-defeating. In the same way, demanding that people pay a tax but not fixing at all how much that tax should be, is a broken rule, and cannot be part of morality. Nothing will stop the ruling class from incessantly increasing the tax rate, if you accept the rule. Therefore, the rule must be rejected.
> If paying taxes were part of morality, it would require to fix the tax rate once and for all. Otherwise, such moral rule would simply hand out a blank cheque to the ruling class, which could ask for whatever taxation amounts
No, you could totally say that it's moral to pay taxes, but that we don't know what the correct amount is, or that the correct amount depends on circumstances. The 'ruling class' does effectively have a blank cheque - who do you think sets the taxes?
I'm not following you. I'm not sure if you're advocating a fixed percentage or some kind of logarithmic tax rate based on how much income you earn. If the later, then the changing cost of living dictates what most people deem to be acceptable tax rates and prevents it from not changing constantly.
It's like demanding that people encrypt their communications with ROT13. That request is fundamentally broken. A system that does not work, and can impossibly work, cannot be part of morality. Hence, it cannot be immoral to dodge such request. It is simple. The specs are f*cked. So, there is no point in implementing them, because you can see upfront that the program will not work anyway.
It's not at all like that, unless you have found a way in which people encrypting their communications with ROT13 can keep the society running.
Enjoy your excuse for tax avoidance :)
People need to read this and get it through their head - progressive tax rates don't work because the truly wealthy can afford to hire accountants to avoid tax to a huge degree. It disproportionately effects the middle class.
> People need to read this and get it through their head - progressive tax rates don't work because the truly wealthy can afford to hire accountants to avoid tax to a huge degree. It disproportionately effects the middle class.
Progressive tax rates on non-capital income, with additional flat taxes on specifically labor income, and lower (but still progressive) rates on capital income hit both low-income workers (because of payroll tax, which bites them hardest due to declining marginal utility) and high-income workers (the part of the middle class that isn't "small business owners") hardest even before considering tax avoidance.
A progressive tax on all income without special tax favor for capital and special tax penalty for labor would go a long way toward making things better, even with the possibility of the rich spending some of their money on less rich accountants to avoid some of their tax burden.
Avoidance is a much smaller problem than the system being designed to favor the way the ultra-rich earn income from square one.
Why not scrap income tax altogether and tax land value?
It seems insane to me to punish people getting better jobs. But by owning expensive land you are in effect depriving others of using it. If you want to argue a moral basis for taxation, that is surely one.
Taxing career advancement instead of property investment and absentee land owners sitting on property seems completely backward. But I never considered that tax laws were probably designed from day 1 to benefit the rich, since the wealthy are so much more influential in any government (including democracies).
They already get most of their income through capital gains, so they dodge 30% on a tax that is about 30-40% percent to begin with. So, yeah, they pay about 25% tax on their earnings. Now how does that compare with most people's tax rate?
In the last 20 years or so, I have come across a couple of ideas that are not politically palatable.
The first was a universal transaction tax. Every transaction that passes through the banking system has an associated transaction tax rated at 1 cent per 100 dollars collected by the banks, remitted directly to the government and taken out of the transaction. All monies transferred out of a country would have the originating country collect and retain the tax.
The interesting aspect of this is that all funds that end up in the banking system, irrespective of legality of source would participate in the transaction tax. And based on the figures of over 20 years ago of only 1 in every 1000 dollars passing through the banking system was from legal enterprises, that's a lot of additional taxed wealth.
The other aspect of that discussion was that all other taxes, government charges (duties etc) would be dispensed with. It was unpalatable because it treated all as equal and various interest groups don't like that.
The second one was charging a flat tax (income) on every entity with the only allowable deduction being salaries and wages. This is based on gross income not net income. One aspect would be to force companies to run much more efficiently than they would otherwise do so. Again treating every entity equally would not be politically palatable.
Of course, there will those who would still try to game the system, them you cannot get rid of.
Largely varying margins in different industries makes this seem unfair to me, unless I'm misunderstanding it. Basing it on net income avoids this, but then you get funny bookkeeping to game the system.
Precisely, Net income leads to funny bookkeeping to game the system. The goal of gross income forces companies to be efficient and with only wages and salaries as deductions, not at the expense of employees.
Trade tariffs can be applied in a similar manner. In the usual case, tariffs are based on the worst performing internal supplier, not on the best performing (most efficient) internal supplier. As efficiencies are gained by all, the tariffs themselves can come down. If the most efficient internal supplier gets less efficient, the tariffs do not increase to offset this decrease in efficiency. hence, they are forced to maintain or increase efficiency.
But if so much wealth is hidden and not tied to each nation's fate, those with the most power and influence lose the connection to their compatriots.
This has led to the brittleness of the current international order. Since the fall of the USSR, national treaties no longer bottom out at the self-interest of each countries' residents. We are trusting a legal framework that has had its foundation severely degraded over the past 30 years.