We're in the political season, and politicians are competing on how to best adjust the tax code to make it fairer while raising sufficient revenue to operate the government and address the deficit -- all in all a formidable challenge.
Income tax brackets, millionaire's tax, value added tax, flat tax, fair tax, 9,9,9, demand side, supply side, etc, etc, etc.
How about a bit more of a radical approach -- the government taxes, at a flat rate, for both individuals or coproprations, ONLY the portion of your annual earnings that you haven't spent. No deductions but everything is expensible. Retirement savings (i.e. Medicare, Social Security) are separate taxes that this proposal does not address -- but they are a deducted expense.
Make 100,000? Manage to spend all of it? No tax for you. Make a million? Manage to spend all of it? No tax for you. But no savings either, so a nicer lifestyle, to be sure, but no accumulation of wealth. Want to keep 100,000 (or a million) as savings? Fork over 20% (or whatever) to government.
This would be insanely stimulative to demand,and is the logical conclusion of a consumer society. And rather than having an estate tax to try and regain equilibrium, which always seemed incredibly unfair to me, it creates a potential for equilibrium on every January 1st.
TC has lost his mind, some would say -- how would the government collect any revenue if everyone spends everything?
The stimulative effect would be huge, the need for government spending would be drastically reduced. But since some will make a lot and save a lot, taxes will be pouring in anyway.-- theircompetitor, Oct 26 2011 The New York Times weighs in http://www.nytimes....pending-stupid.html [theircompetitor, Oct 26 2011] The Laffer Curve http://en.wikipedia.org/wiki/Laffer_curve [theircompetitor, Oct 26 2011] A couple of thoughts: (1) There is a mad genius in this, particularly as it makes the American Dream attainable only by lottery windfall and, in that case, potentially only retainable for the duration of the tax period; and (2) My instinctive response to this is that it would prevent social mobility in an upward direction (no incentive to save) and promote social mobility in a downward direction (no savings to provide, say, redundancy safety net), with the wealthy able to offshore their funds quick smart and continue to live, as gentlemen do, on the income on their income.-- calum, Oct 26 2011 thanks, I was going for mad genius :)
Challenges abound, of course, but if you incent savings, the rich get richer. And yes, this creates a grasshopper, rather than ant society.
The trick part is this arguably is already the case for everyone in the US who is under the income tax line. They are already disinceentivized to cross it, unless they can cross it meaningfully.
That's why I feel that the best solution to genuinely create a fair system and stimulate savings is a VAT instead of (not in addition to) an income tax. Within an income tax structure, I would exempt living expenses -- whether rent or buy -- short term it shifts the economics towards renting, but longer term, it increases the value of real estate -- and solves the issue of the same federal tax rate in NYC and in Peoria, with vastly different expense structures.-- theircompetitor, Oct 26 2011 (-) Way too easy to dodge. This would just remove all taxes from the rich and only tax the poor as they wouldn't have the easy access to the tax shelters. All this discourages is cash saving. If this went through, it would just get everyone to buy stocks. Overnight all savings accounts would be re-engineered to be investment accounts. "No, I didn't save that $100K, I spent it buying these 100 shares in this new company called Savings Inc."-- MisterQED, Oct 26 2011 definitely not, MisterQED. The intent is not to allow trivial shelters, spending means spending -- it doesn't belong to you in any traceable way -- which is trivial to enforce by chasing your Social through any secondary companies.-- theircompetitor, Oct 26 2011 So shell companies and other tracing obscuration efforts don't exist?
I forsee a huge boom in illegal offshore demand, and a large increase in FBI staffing needs.-- RayfordSteele, Oct 26 2011 [Ray], that's definitely not the goal, and I really don't agree. I'm not proposing it's impossible to find loopholes, but actually as you know, taxes make thieves of us all. I'm saying whatever you have left, you get taxed on. If it moves from your bank account to another bank account, that account cannot escape taxation unless it spends it all. So of course this is an absurdist solution, but I don't think it's any more prone to fraud than any other taxation system.-- theircompetitor, Oct 26 2011 A question: if you cross an income tax threshhold in the USA, is your entire of your income subject to that rate of tax, rather than only that portion that exceeds the limit? The former would represent a significant "disincentive to cross" but if the latter, the disincentive is lessened: you're still getting more pay.-- calum, Oct 26 2011 Calum, the latter. You only pay the higher rate on the portion above the threshold.
If this were to go in place, I forsee a lot of sales of collectibles of one value threshold or another. Even if you consider stocks cash equivalent, what about gold jewlery, fine art, baseball cards? All of those are definitely sold, but are also reasonable mediums of exchange.-- MechE, Oct 26 2011 [calum], the Laffer Curve attempts to assess the impact at different levels.
Interesting point, [MechE], but not sure how important it is -- after all, we have a black economy now (in fact, one of the best reasons for a VAT is to get at it).-- theircompetitor, Oct 26 2011 //spending means spending -- it doesn't belong to you in any traceable way//
This makes little sense - I could spend my millions on antique china. Or do I get taxed on the net value of my assets? In which case, who values them? And who disputes the valuation?-- pocmloc, Oct 26 2011 Bun for thinking about new approaches to a horrible horrible system that now creates an iron ceiling between the middle class and the upper classes and encourages the poor to stay in their place with promises of tidbits and scraps as long as they do what they're told. This is something that may be coincidence but I doubt it.
Notice how the super rich often talk about raising the income tax? Because they get much if not most of their income from capital gains. They're also smart enough to write off most of their lifestyle expenses against their income taxes so a mega millionaire wanting everybody to pay 50% income tax isn't effected at all, especially since his team of accountants probably has him effectively paying the absolute minimum. That private jet and those trips to Swiss ski resorts are all business related.
Now take somebody trying to break out of the middle class making say $200,000 a year in California, call him "rich" and tax him accordingly and he'll be busy enough paying taxes that you won't have to worry about him joining your country club or having his kids go to your kids' schools. The rich touting higher income taxes also get to appear like they're advocates for the downtrodden, something that sounds great at exclusive cocktail parties.
Tin foil hat conspiracy theory? Eh, maybe.
I have no idea if this would be a good or bad idea but it's interesting at least.-- doctorremulac3, Oct 26 2011 pocmloc -- at a simplistic level, the antique china dealer would still have to pay taxes. And if we are so clever that everything is bartered -- then so much the better -- that would be ideal. But I expect something like this would be an incredible driver to growing the pie.-- theircompetitor, Oct 26 2011 //And if we are so clever that everything is bartered -- then so much the better -- that would be ideal.//
How is that better? The nice things about money (the ability to have arbitrarly small valuation units, ease of transport, uniformity of valuation) are pretty much neccesary for society to function.-- MechE, Oct 26 2011 clearly I'm not looking for "barter" in that sense. What I'm saying is that if we find good things to spend money on, so much the better, and if the taxable pie is therefore smaller, so what?-- theircompetitor, Oct 26 2011 I have to vote against this because it is inherently unfair to Republicans, who are the only ones insane enough to want to spend every cent they have just to avoid paying taxes.-- tatterdemalion, Oct 26 2011 What if I spend all of my money on gold bars and save those?
A major problem I see here is that nobody will be saving any money. That is partly what caused the economy to crash - everybody spending outside of their means and not saving a dime.-- DIYMatt, Oct 26 2011 Does the seller of the gold also spend all his money on gold?
Presuming a zero sum game, some one is left with taxable money.
Presuming a non-zero sum game, you will actually have growth and get more taxable income.-- theircompetitor, Oct 26 2011 // So of course this is an absurdist solution, but I don't think it's any more prone to fraud than any other taxation system. //
I would dispute that. Under reasonable laws, people tend to behave reasonably, and so I would suspect a correlation there. There are more criminals when there is more incentive to become a criminal. And conversely, where there are no laws at all and anarchy reigns supreme, criminality is rampant.-- RayfordSteele, Oct 26 2011 The percentage you have to spend to avoid taxation should be a variable parameter, so the govt can tweak the amounts of stimulus in any given year.-- phundug, Oct 26 2011 // //And if we are so clever that everything is bartered -- then so much the better -- that would be ideal.//
How is that better? The nice things about money (the ability to have arbitrarily small valuation units, ease of transport, uniformity of valuation) are pretty much necessary for society to function. //
Not to go all Ayn Rand or anything but when it's no longer possible to get value for value because of over taxation then people have no choice but to barter. To me there appears a direct link between higher taxes pushing the economy further underground as it's the only way to get ahead.The government is taxing us to death here, and not figuratively either. They introduce new 'temporary' taxes at whim, and up the rates arbitrarily in a shell game designed to give folks one thing to fight for while six other things get passed behind closed doors.When I purchased a trailer under my numbered company to save tax they transfer the ownership to my person rather than my company and tell me the only way they will insure it is if I sell it from myself to my company and pay the taxes again.
It's insane, like the meaning of the word govern has been forgotten.
They have the nerve to wonder out loud why people go postal.They're bloody well feeding on us.-- 2 fries shy of a happy meal, Oct 26 2011 If you want to put a tax on money (but not assets), just use inflation, i.e. print money.
Indeed, I think someone has proposed abolishing income tax altogether and replacing it with carefully controlled inflation.-- xaviergisz, Oct 26 2011 hmm, interesting-- theircompetitor, Oct 26 2011 //someone has proposed abolishing income tax altogether and replacing it with carefully controlled inflation.//
Then someone else proposed that we keep the income tax AND the inflation, which is how we got the system we have now.-- doctorremulac3, Oct 27 2011 ha-- theircompetitor, Oct 27 2011 Putting aside the matter of whether this is a good idea, in principal, or not, I think the practical problem here is a fairly straightforward one. How do you prove that someone has spent all their income? If you are just looking at their bank balance on the final day of the tax year then it's fairly simple to just take the money out and put it under your mattress for 24 hours and then pay it back in next day. If, on the other hand , the government want everyone to provide receipts for every penny they've spent in the year then I foresee some administrative issues!-- DrBob, Oct 27 2011 [DrBob], the IRS (and similar bodies) track allowable expenses now, I'm not sure why this would be much different.
There are many examples of this happening already -- for instance, a company expenses payroll and nets out to zero, and doesn't pay taxes -- but then the employees, to whom the income flows, do.
No matter how you arrange the musical chairs, at some point someone would have income, so this should be either neutral (presuming the correct rate is set) or massively stimulative, since spending habits would go to the ant from the grasshopper (see linked NY Times article)-- theircompetitor, Oct 27 2011 Ah, but income can be taxed at source. Not directly so with expenditure. Hence purchase tax, VAT etc are collected by vendors and passed on to the government. If someone was keeping their unspent cash or Krugerrands in a cardboard box under the bed, the government would never know about it. And even if the government had a list of items, like gold, that they decided was really unspent money, you can bet your boots that a sceme would pretty soon spring up where some other commodity, not on the list, became a medium of exchange. The scheme might well work on a corporate level, where businesses will be busily overstocking in the the run up to the end of the fiscal year in order to avoid taxes (and hence stimulating demand), but not on a personal level I feel.-- DrBob, Oct 27 2011 Simply make profit illegal. Anyone found having profited in any way fom any activity should be fined that amount.-- rcarty, Oct 27 2011 [DrBob], let's test your assertion. Say I'm a rapper and I make $1M in income a year rapping limericks. I have an extensive posse and and several bitches, 5 people in all, to whom I pay, 100K each. The remaining 500K I spend on jetting around the world on my G6. For simplicity, let's fold my housing, food, etc into this sum, so yes, sucka, I don't pay a dime in income tax.
However, each rich bitch that gets 100K must then either spend it all on mannys and peddys or whatever is left she has to pay income tax.
Similarly, the company that leases the G6 to me has to spend 500K or they have to pay income tax.
So presuming we define income as what came in, and spend as what left, and tax on the balance, I'm not seeing how people can "avoid" it.
To meaningfully avoid, you cannot spend -- you have to avoid income. But without income, you cannot spend. Bartering with the G6 company to fly you around all year does not pay for the grocery bill. And btw -- the IRS already defines such services as income, as it would overly generous benefits, company cars, etc.
Even if such an underground economy emerged, my bet would be that it would not be very different in scope from todays "cash" transaction one.
Maybe I'm missing something, but I'm seeing a lot of attempts at musical chairs, but it appears someone will always hold the bag.-- theircompetitor, Oct 27 2011 This idea sounds essentially the same as printing money and letting inflation rip - it produces much the same incentives to spend rather than save and/or to buy gold bars. Bear in mind that if you incentivize people to spend and not to save, then you're also blocking investment and therefore sucking in imports and off-shoring jobs - possibly not the desired result.-- pertinax, Oct 27 2011 [TC] Except the aircraft company is based in the Caymans, and one of the posse is Swiss, one is Brazilian, and one is Kenyan. So none of those recievers pay US taxes.-- MechE, Oct 27 2011 Good point, MechE, except the IRS covers that too -- there was a major case with the credit card companies just a few years go. All tax schemes create shelters, the more interesting question is whether this would be a net gain for the economy, and fairer.
Prompted by the typical take (rich getting richer), recent tax discussions and a couple of annotations here, here's some astonishing math:
If after 9/11 we raised rates to 8% and held them there, a $1m in the bank would be worth $2M today. As it is, it's probably worth less than $1M given inflation, and it's not worth much more than $1M in nominal terms, since rates are so low.
The simultenous move in the other direction for interest, saved an average person with 200K in debt approximately 60K. (unfortunately, most didn't use the 60K to reduce the debt, but instead, borrowed more)
So in fact, the low interest rate environment makes it much harder for the rich to get richer in the classical understanding of the expression (i.e use their current money to make more money) What it does do is make it easier to take risks for banks, because it's harder for them to make money -- these decrease in perceived risks has predictable results, eventually.-- theircompetitor, Oct 27 2011 I have nothing useful to contribute at this time.-- Alterother, Oct 27 2011 That's a step up from us lot who never do.-- RayfordSteele, Oct 27 2011 //Say I'm a rapper// Call yourself a rapper, honkey? Shiiiiit! Yo' mamma! I do a splendid Scots accent too! Available for weddings, funerals and other religious rituals of dubious value or legality.-- DrBob, Oct 27 2011 I'd suggest you combine the two, but the world is already blessed with at least one Scottish rapper.-- Alterother, Oct 27 2011 3M Scotch tape?-- RayfordSteele, Oct 27 2011 [DrBob] truly tempted to record a sample and share via a youtube link, but I fear that may cross a boundary that can never be uncrossed :)-- theircompetitor, Oct 27 2011 Promotes over consumption.-- bob, Oct 28 2011 I read that three times before I realized there should be a hyphen in it somewhere.-- Alterother, Oct 28 2011 It would grossly undercut the value of the currency by forcing all liquidity into other instruments. Is the purchase on equities, and other holdings included? If so it quickly becomes very hard to track the real/claimed value of assets and the entire system feeds a black market in falsely valued liquid assets.-- WcW, Oct 28 2011 Time to dust this sucker off-- theircompetitor, Mar 18 2020 Seeing this title right now I thought it would be an "out" tax for being out of your home, and so potentially spreading disease.-- caspian, Mar 18 2020 random, halfbakery