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The 15% Tax Rate

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Re: The 15% Tax Rate

#51

Post by lautis »

dexen wrote: post #39
gwillen wrote: post #28

Earlier quoted context omitted.

http://www.gocomics.com/tomthedancingbug/2003/03/08/

The comic, however snarky and cute, manages only to obscure the point further. The (E) [in the comic] is different than other ones, because there's no exchange of goods nor services for the money between the company and its owner, the Shareholder. Let me put it my way: When a plumber puts his knowledge and tools to work, his revenue is taxed once, at personal level. When a shareholder puts his knowledge and money to…

The corporation is a separate legal entity from it's owners, and thus is taxed separately. In step E the good being exchanged is money.

Re: The 15% Tax Rate

#52

Post by onenine »

yummyfajitas wrote: post #41
cluda01 wrote: post #33

Earlier quoted context omitted.

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 emplo…

http://www.state.gov/secretary/rm/2010/01/135105.htm

Google, and of course virtually every multi-national corporation based in the US, does make use of many US government capabilities. I don't think it makes any sense to say:

>They don't consume any US government services either

However, I do think the corporate income tax issue is a subtle one.

It'd be interesting to compare what Larry and Sergey will pay in taxes versus government outlays for the things that have made Google possible.

Re: The 15% Tax Rate

#53

Post by mseebach »

yummyfajitas wrote: post #46
mseebach wrote: post #38

Earlier quoted context omitted.

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?

That's flat, not progressive. Progressive consumption tax would mean that the first $5.000 worth of goods you buy are not taxed, the next $15.000 are taxed at 15%, everything beyond that at 20%. How will each vendor know which rate to tax you at?

Re: The 15% Tax Rate

#54

Post by Aloisius »

meric wrote: post #50
Aloisius wrote: post #47

Earlier quoted context omitted.

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.

Most of the rich don't go around buying stupidly expensive things. They don't get rich by spending. They get rich by saving.

There are billionaires that live in modest homes and don't particularly act or spend like their rich, but they enjoy all of societies benefits that created an environment that enabled them to become rich. They should pay for it so that future billionaires and millionaires can be made.

Re: The 15% Tax Rate

#55

Post by tomjohnson3 »

> The theory in taxing capital gains at a lower rate than ordinary income is that the wealth that was invested that produced the capital gains has already been taxed once when it was earned.

Whenever someone argues this point (not fw, in this case) and alludes to being double-taxed, I like to remind them that only the gain (minus any loss) is taxed...so there is no double-tax. ...and why someone would invest in stocks or startups vs bonds is that the rate of return is potentially much greater. I don't think there needs to be an extra incentive (in the form of lower tax rates) for investors. ... That argument seems to be a smokescreen.

On another note: I'd love to see a tax rate (or fair analysis) based on discretionary income.

A progressive tax system addresses this a bit...and, in my opinion, this is why moving to a flat tax would benefit the rich and hurt the poor.

Re: The 15% Tax Rate

#56

Post by mseebach »

meric wrote: post #45
mseebach wrote: post #38

Earlier quoted context omitted.

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…

Yes, let's actively lobby the government to put infrastructure in place to monitor every single penny we spend. There's no way that could go wrong.

Re: The 15% Tax Rate

#57

Post by icebraining »

yummyfajitas wrote: post #46
mseebach wrote: post #38

Earlier quoted context omitted.

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?

That problem is indeed solved, it's what we have here in Europe. But that's a fixed rate per product, while meric was proposing a tax rate dynamically adjusted to the individual.

Re: The 15% Tax Rate

#58

Post by Bricejm »

The argument that taxes on capital gains is a double tax is crazy. The original principal isn't taxed, just the gain - no double tax. There's no reason why capital gains shouldn't have a progressive marginal tax rate like ordinary income.

Re: The 15% Tax Rate

#59

Post by icebraining »

mattgreenrocks wrote: post #22
nkohari wrote: post #12

Earlier quoted context omitted.

If you replaced all taxes with a simple sales tax, it'd be even more regressive, since a gallon of milk (for example) has a higher relative cost to someone who makes $20,000 than someone who makes $2,000,000. Also, it could have an unintentionally bad effect on our (now very consumer-driven) economy. You don't want to discourage people from spending money.

What if we special-cased the essential consumables a bit? Not very elegant, and probably a bit exploitable, but I can't think of any glaring holes (yet). As for your second objection, I don't see the issue. If they don't want to be taxed, they can forego buying something.

As for your second objection, I don't see the issue. If they don't want to be taxed, they can forego buying something.

That's parent's point: if I one buys less because of the tax, that's means someone or some company has lost a sale, which means they'll need to cut back on spending, etc. In a consumption based economy, you want money to be constantly re-injected into the economy to prevent stagnation.

Re: The 15% Tax Rate

#60

Post by cynicalkane »

Most economists feel it's correct to tax consumption, not income. Taxing income has the effect of compound-taxing investment, which is A Bad Thing. This is why the capital gains tax rate is 15%, since capital gains usually come from money put down that was already taxed.

So we get unfair situations, where a business founder is taxed once on his initial investment, again on his company's income tax, and finally on capital gains; whereas someone like Romney is taxed much less.

One obvious way to fix this is to protect investment accounts. You know how a traditional IRA is tax deductible when you invest, and taxed when you withdraw? Open up more tax-advantaged investment accounts like that[1]. Money isn't taxed until it's withdrawn, presumably to be spent. With such a system in place it will also become reasonable to tax the rich at a very high rate, without inefficiencies like over-taxing transient income or "destroying jobs".

The argument the author presents is strange to me. He says, essentially, that for economic reasons it's fine to tax capital gains at a lower rate. But then in the next paragraph he calls it "unfair". So... he proposes an unsustainably low flat tax rate, which he just implied would be bad, but feel fair... doesn't seem like sound economic thinking to me.

[1] Greg Mankiw mentions this idea in a NYT op-ed: https://www.nytimes.com/2012/01/22/business/four-keys-to-a-b... . I've seen a few other economists also toss around this idea also.

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