Fair Tax Burden Distribution

[Mr Skeptic]

What aspect would you consider to be the fairest way to distribute the tax burden? (This is an opinion, since what you regard as fair may not be the same as what others regard as fair). Would it be flat, proportional, progressive, or regressive? Would it depend on how the government spent said tax? Would it be based on number of people (head tax, dependent deductions)? Would it be based on ownership (property tax)? Would it be based on purchase value (sales tax, value added tax)? Would it be based on total revenue (income tax), or perhaps on net revenue (business/corporation income tax)? Would it be based on ownership of cash (inflation tax), or perhaps ownership of wealth (wealth tax)? Would it be different for a non-human entity (corporation taxes)? Would it depend on negative aspects of an item/service that are not accounted for in the price (Pigovian or "sin" tax)? Would it be based on the transfer of money to others (inheritance tax, gift taxes)?

 

More here: http://en.wikipedia.org/wiki/Tax#Kinds_of_taxes

 

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In my opinion, fairness of the tax would depend on the ease with which people make money, and their ability to pay. That is, it should be increasingly difficult for the rich to become richer, because since a person's ability to generate wealth or value is limited, at some point any additional income they receive is at the expense of others. Also, people do have a cost of living and I don't think that should be taxed since it is not "profit" (imagine if Wall-Mart were taxed on their revenue rather than their profits).

 

So first of all, I'd say the cost of living of a particular area needs to be deducted from income taxes. Then, I'd have a progressive income tax, and also a progressive wealth tax (since wealth can be used to generate income). (The wealth tax alone would suffice, except it would encourage wasteful spending.) Finally, a tax on things with negative externalities equal to the negative externality.

 

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What would you base your concept of fairness for taxation on, and how would you suggest said concept could be implemented?

[jackson33]

What would you base your concept of fairness for taxation on, and how would you suggest said concept could be implemented? [/Quote]

 

Skeptic;

 

The one thing, that bugs me the most whenever 'National Taxing' become the issue, is when the 50 State Taxing Authorities and countless other local ones, are never considered, where people earning under the current magic number of $250,000 or in fact pay a said 'No Tax', actually pay the majority. I'm going to blow your mind with this idea, I've had for about 15 minutes;

 

To solve more than one problem, in some manner, I believe the STATES, should pay for the operation of a Federal Government, in total and without the Federal having any authority over what the individuals, corporations pay, including user taxes.

 

Keeping to the fiscal year (Oct-Sept each year), then the Federal Government, via Congress would produce a budget of -x-$ for the in January, for the next year starting in October. Since it's the House is charged with the process, each of the 435 members, working with their local leaders and home State Congress, should have the knowledge of what is collectable in connection to their own tax structure.

 

Lets say the proposed budget for that following year Federal spending is 3T$, then according to the number on House members, each state would be responsible for 1/435th times the number of representative. Montana (one house member) $6,896,551 and California (53 House members) $365,517,241, due on or before September 1st.

 

Problems solved;

 

1- All States, would be in charge of collecting ALL taxes or revenues now going directly to the Federal, from all entities in their State and the administrative cost involved, wiping out the total need for the IRS.

 

2- Legislatures in Washington, would be more concerned with their designed duty (representing their constituents) and less concerned with promotion of a Federal Government. Voting for a Bridge to no where, then taking on real mean.

 

3- Duplication of programs; I don't know of any Social Program, most local authorities, State Authority is not already duplicating that of a Federal Authority. This would eliminate the need for a good many Federal Departments, where in the States the increase required would be minimal and no doubt under this Taxing Structure extremely efficient.

 

4- Any Fair Tax, National Sales Tax or the Value added tax we have talked about, system that could be devised and administered by other than the States, can be altered to the needs of certain States or segment of the entire society.

 

5- Growing States, usually doing something right and likely under more responsible governing, each ten years will take increased responsibility, those having trouble losing seats, likely not doing something right will have less responsibility, but in all cases those failures or success will be determined by the public (people/business), moving into or out of a State.

 

Rather than going on, I believe the idea is covered and will submit this for arguments, I'm sure will follow.

[ecoli]

@jackson - to play the devil's advocate for a moment... wouldn't that give rich states even more power over federal government spending?

[Pangloss]

In a perfect world, where no dodging were possible, I would charge everyone the same income tax rate and call that "fair". I accept a progressive tax because it's a reasonable compromise, though I am irked by the fact that 47% of Americans don't pay a single dime, a number which includes not only low-income folks, but high-income dodgers as well.

[jackson33]

@jackson - to play the devil's advocate for a moment... wouldn't that give rich states even more power over federal government spending? [/Quote]

 

ecoli; Feel free to argue the idea, I don't get many these days. Why would 49 States cede their power for the sake of one, during the budgeting process. Programmed spending is already done by district or population demographics, nothing would change. Discretionary spending, budgeted *and need to be received from the States* would be looked at entirely differently then it is today, the richer States paying the most, would bet be a whole lot less.

[D H]

In my opinion, fairness of the tax would depend on the ease with which people make money, and their ability to pay. That is, it should be increasingly difficult for the rich to become richer, because since a person's ability to generate wealth or value is limited, at some point any additional income they receive is at the expense of others.

 

I disagree with this contention. Most of the rich, the nouveau riche at least, have attained their vaunted status because they generated a lot more wealth than they accumulated. Take Bill Gates as the prototypical example. Yet surprisingly I come to the same end conclusion as do you, but by a totally different path.

 

I view taxation as an inherently unfair proposition. Look at it this way: If a private individual did what the government does, said individual would be put behind bars for life. What the government does is legalized armed robbery.

 

While taxation is is a necessary function of the government, it is inherently an evil one. Asking for fairness is, well, silly. The best one can do is to spread the unfairness around as evenly as possible. We should all feel the same pain using some reasonably prudent person metric. (Some billionaires feel more pain at the loss of a penny than a poor person feels at the loss of a dollar. Those billionaire's feelings are not reasonably prudent.) A reasonably prudent billionaire will feel less pain from the loss of 10% of their income than will a poor person. To the poor person that 10% means the difference between going hungry for just a few nights of the month versus most of the month. To a rich person that 10% might mean forgoing the caviar and champagne on the first class flight to France.

 

One consequence of this evenly spreading the pain is that even the poorest should pay some token amount as taxes. Note well: I said TOKEN amount. The government should assess this token amount Even if it is smaller than the amount of money it costs the government to collect it. The government owes this burden to all. It is through this burden that people feel they have earned a say with their government, that the government truly does owe them something. They paid for it, after all. While the poor will not fund the government to any sizable extent, they will feel that they are part of the system and that the government is accountable to them.

 

At the other end of the extreme, the rich may well have to pay more than they are now. Many of the rich have an imprudent aversion to paying taxes. This aversion is so imprudent/illogical that they will pay far more in fees to tax lawyers/accountants and bribes campaign contributions to congresscritters than they save in terms of reduces taxes.

[padren]

To solve more than one problem, in some manner, I believe the STATES, should pay for the operation of a Federal Government, in total and without the Federal having any authority over what the individuals, corporations pay, including user taxes.

 

On the surface I really like this idea. The problem I see coming up though, is very large corporations and wealthy individuals can become a resident of a state like Wyoming, pay almost no taxes, and abandon states like California and New York to be supported by those who can't afford a tax-haven residence in a tiny state.

 

Any thoughts on how to solve this? It does seem like an intriguing idea though.

[jackson33]

On the surface I really like this idea. The problem I see coming up though, is very large corporations and wealthy individuals can become a resident of a state like Wyoming, pay almost no taxes, and abandon states like California and New York to be supported by those who can't afford a tax-haven residence in a tiny state.

 

Any thoughts on how to solve this? It does seem like an intriguing idea though.[/Quote]

 

padren; Wealthy people, the not so wealthy people and business, are already moving around to States for a host of reasons. You can move to North Dakota and get a job today (4.9% unemployment rate vs. 9.7% National Rate, with no so called 'real' factor, quit looking), and by the way has -1- House Member. People are retiring in groves moving to Texas with no State Income Tax and business is moving out of California, quite frankly because of the State Government (not doing something right).

 

Otherwise, what would be the 'incentive' to move a business to Wyoming (they never have had a State Corporate Tax**, where in other States can top 8% today). What Corporations pay in Taxes to the Federal, would be eliminated and though not that much, that 35% per normally paid would increase consumption for ALL States.

 

It would be my opinion, the reverse would happen, States would be more inclined to promote business activity for what they already pay, especially in local taxes, driven by the desire to keep their people in jobs.

 

**

http://www.taxfoundation.org/taxdata/show/230.html

[swansont]

In a perfect world, where no dodging were possible, I would charge everyone the same income tax rate and call that "fair". I accept a progressive tax because it's a reasonable compromise, though I am irked by the fact that 47% of Americans don't pay a single dime, a number which includes not only low-income folks, but high-income dodgers as well.

 

That's income tax. When you look at the total tax burden, it's a different story. I blogged about this recently.

http://blogs.scienceforums.net/swansont/archives/4859

 

The top 1% may pay a little more than 20% of the total taxes, but they earn 20% of the total money, too. Not very progressive at all and that's usually left out of the discussion. It's always how the top 1% of earners paying a third of the income tax, because the direct income comparison and including payroll taxes are inconvenient to the argument.

 

On the issue of low-income not paying income tax: it's a great rallying cry and convenient complaint, but it's mostly BS. The rich who gain their wealth by running a business mostly do not want the poor to be taxed more, because they have very little discretionary income. If they start paying that to the government, then millions of people will not be able to afford to buy that Xbox or computer or whatever they're getting at Best Buy. They'll do without a cell phone. They won't consume (or consume nearly as much) high-profit-margin junk after paying for rent and food and, if this came to pass, taxes.

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One consequence of this evenly spreading the pain is that even the poorest should pay some token amount as taxes. Note well: I said TOKEN amount. The government should assess this token amount Even if it is smaller than the amount of money it costs the government to collect it. The government owes this burden to all. It is through this burden that people feel they have earned a say with their government, that the government truly does owe them something. They paid for it, after all. While the poor will not fund the government to any sizable extent, they will feel that they are part of the system and that the government is accountable to them.

 

But they do pay. To ignore payroll taxes is to ignore almost half of personally-paid taxes.

[D H]

That's income tax. When you look at the total tax burden, it's a different story. I blogged about this recently.

http://blogs.scienceforums.net/swansont/archives/4859

The payroll taxes aren't so much a tax as a forced retirement program. That it is a lousy retirement program, and that it is a lie to boot is a different issue. It is the Democrats who are crying about that regressivity (you are far from the only one complaining about this, Swansont). These are alligator tears.

 

The payroll taxes are regressive by design -- and it is a Democratic design. The program was designed to be a benefit to the lower and middle classes. It was touted from the onset as a retirement benefit, money put in a lock box.

 

I'll consent to ending those nasty payroll taxes if you will consent to ending the programs they fund.

[Dak]

the difference between rich and poor naturally increases for no reason, which is a flaw in the capitalist system imo. Progressive tax fixes that. It still allows those who contribute the most to be rich, but it puts a burden on them to continue contributing if they wish to get richer, rather than creating a family-line of essentially upper-class-by-birth 'favored' people who's great-great-great grand-daddy did something useful, whilst they themselves simply allow others to manage the money that is theirs by birth.

[swansont]

The payroll taxes aren't so much a tax as a forced retirement program. That it is a lousy retirement program, and that it is a lie to boot is a different issue. It is the Democrats who are crying about that regressivity (you are far from the only one complaining about this, Swansont). These are alligator tears.

 

The taxes one pays are not designed to fund one's future retirement. They are supposed to fund the people who are currently retired. In reality it's a Ponzi scheme.

 

The payroll taxes are regressive by design -- and it is a Democratic design. The program was designed to be a benefit to the lower and middle classes. It was touted from the onset as a retirement benefit, money put in a lock box.

 

I'll consent to ending those nasty payroll taxes if you will consent to ending the programs they fund.

 

That's a sentiment that can be applied to all government programs. Nothing special about social security and medicare in that regard. But that's a separate argument.

[Mr Skeptic]

To solve more than one problem, in some manner, I believe the STATES, should pay for the operation of a Federal Government, in total and without the Federal having any authority over what the individuals, corporations pay, including user taxes.

 

That would certainly put an end to many of the abuses of the federal government. However, it would likely increase the abuses of corporations, who enjoy putting their headquarters in one state with low taxes and doing their business in another. This would only get worse in that scenario, so we'd have to have some way to block this. The taxes should be payed wherever the business is done, not wherever the corporation calls home.

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I disagree with this contention. Most of the rich, the nouveau riche at least, have attained their vaunted status because they generated a lot more wealth than they accumulated. Take Bill Gates as the prototypical example. Yet surprisingly I come to the same end conclusion as do you, but by a totally different path.

 

While partly true, you don't become a multi-billionaire by working hard. You become a multi-billionaire by underpaying people for valuable labor, that is, you pay them significantly less than the value they generate and pocket the difference. Which is legal, and in a sense even fair, but to say that all this wealth was generated by that one wealthy person stretches credibility.

[ParanoiA]

I still think the fairest tax system is a consumption tax. It requires no personal, private information. Certain products can be classified as "necessity", or some kind of title, to cover food, clothing, rent - so that they escape any taxation. This covers the poor and the middle class base budgets fairly well - pushing the tax burden onto "wants", which implies disposable capital as opposed to capital required to survive. In that way, the tax is still progressive, in that it applies to surplus beyond necessity, without unfairly moving the burden from one class to another - all classes enjoy the same tax free categories.

 

The rate is the rate. If the administration wants to say they lowered taxes - a simple A and B comparison is readily available in one's own memory. We don't have to wade through 3000 pages of tax code to find out if that's true, or argue about the net difference between an increase on page 1735 and decrease on page 2254.

 

 

By the way, the Fair Tax, being pimped by Neil Bortz and company is almost good...but then falls flat on its face. It tries to use "prebates" to cover "necessity". This is money that gets put in each taxpayer's account each month - like 500 bucks. That's supposed to cover all the consumption tax you would pay for food and stuff.

 

That's effin stupid. Complicating the simple. They expect every tax payer to register - still (what's the point of shutting down the IRS just to reopen the building with a different name?). It's better than today, but it's still dumb.

 

Stossel did a great show on taxes called "An Inconvient Tax" - taken from some documentary that's recently come out. I would link it, but as usual, I'm at work and they don't approve of youtube on the clock. (bunch of commies!)

[D H]

I still think the fairest tax system is a consumption tax.

Moving to a consumption tax would entail a huge, HUGE transfer of the tax burden from the wealthy to everyone else. You are not going to win an argument on that concept at this far left site (witness the majority of the posts in this thread, and the entirety of this other thread.)

[jryan]

My understanding of the Fair Tax is that it would be around 22% on all goods and services, but the Federal Government would refund each person a quarterly basic consumption (expected tax on food and essentials), that would mostly eliminate taxes for those living just on essentials.

 

As such the poor would still pay no taxes... but enforcing it on the ultra rich would be very hard. How would you tax their spending while they are on a private beach in Italy?

 

The nice thing about the fair tax, however, is that it is the best way to tax illegals and drug dealers and pimps. In theory they would all still have to by goods and services legally with the money they receive, so they would be taxed under this system when they do so.

 

Unfortunately, the notion that it will eliminate the IRS (a selling point by many Fair Tax proponents) is a bit odd. It would change it's name, but someone would need to monitor, audit and collect taxes on all of those sales.

[ParanoiA]

Moving to a consumption tax would entail a huge, HUGE transfer of the tax burden from the wealthy to everyone else. You are not going to win an argument on that concept at this far left site (witness the majority of the posts in this thread, and the entirety of this other thread.)

 

Oh, I'm quite sure.

 

And I'm not so sure on the shift. For one, if "essentials" are not taxed, and essentials includes food, clothing and maybe shelter - then what's left to tax from a working poor income? Most of what they buy will be merchandise to that end. Only when they splurge for fuel, a DVD player or a new cell phone would they have to pay taxes.

 

The rich, however, if they are spending their money as opposed to investing it (which you wouldn't want to discourage), should be purchasing far more non-essentials than poor or middle class folk. Yachts, big ticket vacations, their planes and autos - all of this stuff gets taxed and none of it would be considered "essential" I wouldn't think, in anyone's tax code.

 

What I'm getting out of that other thread, in conjuction with this one, is a distorted view of fairness that you get with envy and class warfare, which politicians just love.

 

Humans are so absolutely gifted at lying to themselves to intellectualize exceptions to their principles to externalize their poor performance onto others - usually a minority group - that it's hard to distinguish legitimate logic from the delusional.

[swansont]

The nice thing about the fair tax, however, is that it is the best way to tax illegals and drug dealers and pimps. In theory they would all still have to by goods and services legally with the money they receive, so they would be taxed under this system when they do so.

 

Black market cash transactions would suddenly have a much larger appeal.

[jryan]

Black market cash transactions would suddenly have a much larger appeal.

 

They probably would. But the kinds of taxable items in the Fair Tax would probably lead people to shy away from the black market to an extent as well. I'm sure you can get a nice car on the black market, for example, but good luck getting a warranty from Johnny Two-Time. Also, you certainly wouldn't want to finance it through him!

 

On the other end, if cookies are not on the essentials list I still wouldn't buy my Oreos in a back alley somewhere just to save $1.00.

[ParanoiA]

Black market cash transactions would suddenly have a much larger appeal.

 

Very true. We have to be honest about what we're fixing and what we're breaking.

 

We'd be fixing a 3000 page tax code that people go to college just to understand, creating a whole 'nother freaking career out of just helping people pay taxes. We would be eliminating the loop holes of unfairness we can all lament about all day long in the current tax code. We would be eliminating the personal and private information required by all of us just to report our tax bill. We would be eliminating a major majority of the IRS, since "auditing" would likely be regulated to inspecting sales receipts at tax points as opposed to the threat of one on 330 million people.

 

On the other hand, we will be introducing a whole new reason for black market products. People who buy black market, will know they are. So, if you thought you were getting wine and found yourself downing liquid draino - don't complain to us.

 

And to counter some of that, legalization of some choice drugs could make a good point. Why would anyone want to go right back to buying pot, illegally, from some shaddy stoner out of his basement when you could drive up to the convenience store and pay the tax for the legal stuff?

 

I'm telling you. Forget the VAT. Just legalize pot, tax it and prepare to be shocked at how many of your friends, co-workers, and neighbors have been little pot heads all of this time - and balance the budget.