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The 15% Tax Rate

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Re: The 15% Tax Rate

#41

Post by yummyfajitas »

cluda01 wrote: post #33
yummyfajitas wrote: post #8

Fred Wilson chooses non representative numbers to make his point: But there is a bigger issue here and that is whether it is good policy for someone of Mitt Romney's or my wealth to pay a lower tax rate than the average hard working american citizen. Mitt Romney and Fred Wilson are atypical cases. The bottom quintile pays 4.3% of income in tax, assuming they have any income. The middle quintile pays 14.2%, the nation…

This is interesting but the problem that I see with this argument is that you are ignoring transfer pricing agreements. Basically companies like Twitter (and google, facebook, etc.) use a bunch of complex tax structures in different countries to legally avoid paying corporate income tax. Google paid something like a 2.6% effective tax rate. Others like GE paid a negative percentage. So the issue here is that in the c…

...Twitter (and google, facebook, etc.) use a bunch of complex tax structures in different countries to legally avoid paying corporate income tax.

Yes, many companies use complex tax structures to avoid paying US corporate income taxes on non-US profits. So what? They don't consume any US government services either, and Fred Wilson paid appropriate taxes to whatever nation Twitter Europe lives in.

Similarly, my employees (all located here in India) don't pay any US income taxes. Is there some reason they should?

GE paid a negative percentage of taxes because they lost money in prior years and used a loss carryforward.

The loss carryforward is a necessary hack to the system to prevent taxation from penalizing businesses with volatile income streams. Consider two investments - one makes $10 with P=1. Another makes +$60 with P=0.5, $-40 with $P=0.5. Without the loss carryforward, the volatile company would pay an average tax rate of 45% (15% of $60 when they make money, 0% of -$40 when they lose money).

Re: The 15% Tax Rate

#42

Post by bunderbunder »

comicjk wrote: post #15
jasonkester wrote: post #7

Earlier quoted context omitted.

Wouldn't a flat tax with a nice high threshold be as non-regressive as you could get? Say X% of everything you make over $30k? Poor people pay roughly zero. Rich people like us pay almost exactly X%. Sorted. Extra points if the government looks at everybody's W-2s & 1099s, decides how much it needs and calculates an X accordingly for that year. Then sends me a bill.

That's a nice way to carve out the middle class. Why not just have a graduated tax system with a clean base? It's not the tax brackets that make it complicated, it's the byzantine process of calculating "taxable income."

Realistically, the two are identical. Each is a bracketed, progressive income taxation system.

The only thing that distinguishes them is the number of tax brackets. What's often presented as a "flat tax" actually has two brackets. The first, which starts at $0, has a 0% tax. The second, which starts at $X, has a Y% tax.

Re: The 15% Tax Rate

#43

Post by troyastorino »

mseebach wrote: post #32
meric wrote: post #17

How about replacing income tax with a consumption tax? The current tax system encourages speculative investment for capital gain and discourages investment for passive income due to lower tax rates on capital gain. Just look at the dismal amount of dividends paid out by companies in the US compared to Australia, where many companies pay out over 50% of their profits in dividends. A person who earns a $10m a year but…

First, there is already a sales tax, so the guy spending $10m would probably pay $500.000 (5%), or 25 times more than the other guy spend. Second, low income families spend all their money making ends meet, whereas high income families have a lot more latitude in adjusting their expenditure. Offsetting this with deductions will be a bureaucratic nightmare.

General sales taxes are state taxes, not federal taxes. Changing the incentive structure to any extent will change behavior.

Re: The 15% Tax Rate

#44

Post by adharmad »

ck2 wrote: post #27

Income is income is income. If you make over six digits I don't care what the source is, no-one should get a special rate. Because once you hit that level, there is no way you could convince anyone you are "suffering" even if you decided to work 12 hours a day. At that level work is a choice, where the millions making 4 or 5 digits have no choice.

The question is, how do you calculate income? What deductions are you allowed?

A regular income-earning individual cannot take more than a fixed amount of deductions (in the sense his tax rate is fixed). However, a small business owner or self-employed invididual can deduct business expenses from his income. And there in lies the problem. How do you classify expenses? This creates an incentive to find creative ways of deducting your taxable income, so much that there is an entire industry formed around it.

Re: The 15% Tax Rate

#45

Post by meric »

mseebach wrote: post #38
meric wrote: post #35

Earlier quoted context omitted.

First, both of those guys earning $10m will have paid a $4m income tax. With the remaining $6m, it'll be difficult to claim existing consumption taxes paid will be anything close to $4m. Second, you can implement a progressive consumption tax scheme. You can mirror with existing income tax system - first $10,000 spent each year is tax free, next $20,000 at 15% and so on. It could be hard to implement at this moment b…

How will you track consumption (required for a non-flat consumption tax) without creating a bureaucratic nightmare? There is a strong incentive to appear to spend less than you do (in order to hit the progression later), so every single can of coke you get needs to get attached to your tax-ID.

Definitely it will be difficult to implement at the moment. At the rate the government is passing legislation on tracking people and making companies provide their data to government whenever requested, though, I can definitely see one day (maybe 50 years) where all this will be possible.

e.g. When cash is replaced by only bank accounts, then every transaction becomes traceable.

As I said before though, you can as an alternative lower sales tax on basic goods and raise them on luxury ones.

Re: The 15% Tax Rate

#46

Post by yummyfajitas »

mseebach wrote: post #38
meric wrote: post #35

Earlier quoted context omitted.

First, both of those guys earning $10m will have paid a $4m income tax. With the remaining $6m, it'll be difficult to claim existing consumption taxes paid will be anything close to $4m. Second, you can implement a progressive consumption tax scheme. You can mirror with existing income tax system - first $10,000 spent each year is tax free, next $20,000 at 15% and so on. It could be hard to implement at this moment b…

How will you track consumption (required for a non-flat consumption tax) without creating a bureaucratic nightmare? There is a strong incentive to appear to spend less than you do (in order to hit the progression later), so every single can of coke you get needs to get attached to your tax-ID.

Tax the coke at the point of sale?

Your receipt might look like:

    1  coke          $1
    Consumption tax  $0.15
    -------------------------
    total            $1.15
I don't think it would be hard to program cash registers to do this automatically. Who knows, maybe this problem is already solved?

Re: The 15% Tax Rate

#47

Post by Aloisius »

meric wrote: post #17

How about replacing income tax with a consumption tax? The current tax system encourages speculative investment for capital gain and discourages investment for passive income due to lower tax rates on capital gain. Just look at the dismal amount of dividends paid out by companies in the US compared to Australia, where many companies pay out over 50% of their profits in dividends. A person who earns a $10m a year but…

Consumption taxes in practice are incredibly regressive. Someone who earns $20,000 must spend the majority of their money in order to live. Someone who earns $1.2 million will probably spend a small fraction of it.

Re: The 15% Tax Rate

#48

Post by shareme »

cluda01 wrote: post #33
yummyfajitas wrote: post #8

Fred Wilson chooses non representative numbers to make his point: But there is a bigger issue here and that is whether it is good policy for someone of Mitt Romney's or my wealth to pay a lower tax rate than the average hard working american citizen. Mitt Romney and Fred Wilson are atypical cases. The bottom quintile pays 4.3% of income in tax, assuming they have any income. The middle quintile pays 14.2%, the nation…

This is interesting but the problem that I see with this argument is that you are ignoring transfer pricing agreements. Basically companies like Twitter (and google, facebook, etc.) use a bunch of complex tax structures in different countries to legally avoid paying corporate income tax. Google paid something like a 2.6% effective tax rate. Others like GE paid a negative percentage. So the issue here is that in the c…

Yes, but lets say w talk about the $5 million dollar company..if we have no US corp taxes than that company can locate in the USA and save possibly $500,000 in corp taxes.

We might get enough offsets in jobs, payroll taxes, etc to offset the corp taxes lost.

And better yet it does skew certain manufacturing concerns to not out-source but in-source..

Re: The 15% Tax Rate

#49

Post by meric »

spindritf wrote: post #40
meric wrote: post #17

How about replacing income tax with a consumption tax? The current tax system encourages speculative investment for capital gain and discourages investment for passive income due to lower tax rates on capital gain. Just look at the dismal amount of dividends paid out by companies in the US compared to Australia, where many companies pay out over 50% of their profits in dividends. A person who earns a $10m a year but…

> The second person claims back everything, equal in value to his contribution, resulting in no net gain to society. While I don't disagree with your larger argument, producer captures only a fraction of the value they created. So earning $10M likely resulted in a huge net gain to society, regardless of their spending habits.

Thanks. Corrected.

Re: The 15% Tax Rate

#50

Post by meric »

Aloisius wrote: post #47
meric wrote: post #17

How about replacing income tax with a consumption tax? The current tax system encourages speculative investment for capital gain and discourages investment for passive income due to lower tax rates on capital gain. Just look at the dismal amount of dividends paid out by companies in the US compared to Australia, where many companies pay out over 50% of their profits in dividends. A person who earns a $10m a year but…

Consumption taxes in practice are incredibly regressive. Someone who earns $20,000 must spend the majority of their money in order to live. Someone who earns $1.2 million will probably spend a small fraction of it.

You can lower the tax on goods that lower income individuals are likely to spend on, while increasing tax on goods higher income individuals are likely to spend on, to make it more progressive.
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