The Incredible Shrinking Incomes of Young Americans

[MadImmortalMan]

Simple is better. CC is right about fixing health care and education though. That's two huge expenses for young people in the US at least. So damn much college shouldn't even be needed. I'd make all college courses free for anyone who is employed.

[crazy canuck]

You demonstrate the political problem of implementing sound tax policy.  The .01% are huge beneficiaries of preferential taxation of dividends.   The problem is magnified if there is no inheritance tax.  But people who will benefit very little from the current system seem to think it actually works for them.

Those people will benefit either way. They will have access to huge salaries and investments.

But most people will never have huge salaries but they can chip away through saving and investing.

Yes, that is why an effective tax system would progressively tax all sources of revenue.  People who earn very little would pay no tax while people who earn progressively more will pay progressively more tax.

When the minimum wage was tax free in Hungary, a lot of people (pretty much everyone who wasn't working for a corporation too big to try and cook the books) were on minimum wage on paper, then received extra in cash on the side from the employer.

the thing is, all these glorious plans of destroying savings, or preventing people from leaving something for their families after they die, they would just cuse angst and pain and they would fail. The more complex a taxation system is, the easier to find loopholes.

I would try to devise a taxation system that concentrates on taxing consumption (much harder to hide than income/wealth), and try to keep it as simple as possible.

You are certainly correct that efficient tax systems do not work well in countries that are corrupt or do not have good enforcement infrastructure.  But I don't think that is a good counter example for why countries that are not corrupt and have good enforcement infrastructure should not employ good tax policy.

[crazy canuck]

Simple is better. CC is right about fixing health care and education though. That's two huge expenses for young people in the US at least. So damn much college shouldn't even be needed. I'd make all college courses free for anyone who is employed.

The nice thing about taxing all income progressively regardless of source is that it is simple.  Certainly a lot more simple than our current system where the main beneficiaries are tax lawyers, accountants and their clients.

[MadImmortalMan]

Yeah H&R Block has a ten billion dollar market cap. That's an awful lot of human productivity that could be used for something worthwhile.

[Tamas]

Simple is better. CC is right about fixing health care and education though. That's two huge expenses for young people in the US at least. So damn much college shouldn't even be needed. I'd make all college courses free for anyone who is employed.

The nice thing about taxing all income progressively regardless of source is that it is simple.  Certainly a lot more simple than our current system where the main beneficiaries are tax lawyers, accountants and their clients.

I am not saying taxation systems are good as they are, and I am open to be convinced that a progressive income tax system is better than a flat one, but I am 100% convinced that it is not SIMPLER.

[Martinus]

Meh. Taxation should concentrate on consumption.

Then you would be penalising the poor who spend on consumption a much greater proportion of their revenues than the wealthy.

Taxation should concentrate on assets (with generous allowances for "first home" and the like).

[Martinus]

You demonstrate the political problem of implementing sound tax policy.  The .01% are huge beneficiaries of preferential taxation of dividends.   The problem is magnified if there is no inheritance tax.  But people who will benefit very little from the current system seem to think it actually works for them.

Those people will benefit either way. They will have access to huge salaries and investments.

But most people will never have huge salaries but they can chip away through saving and investing.

Yes, that is why an effective tax system would progressively tax all sources of revenue.  People who earn very little would pay no tax while people who earn progressively more will pay progressively more tax.

The problem with that is that revenue taxes are easiest to avoid by clever tax planning.

[Martinus]

You are certainly correct that efficient tax systems do not work well in countries that are corrupt or do not have good enforcement infrastructure.  But I don't think that is a good counter example for why countries that are not corrupt and have good enforcement infrastructure should not employ good tax policy.

I don't know about Canada, but by that definition both US and the UK are corrupt countries that do not have good enforcement infrastructure. At least judging by what the rich and corporations get away with when it comes to paying taxes on their revenues.

[Martinus]

The thing is at the end of the day:

- consumption tax (or, even more extremely, poll tax) penalises the poor because they spend the most on consumption compared to their overal revenue and/or assets;
- revenue tax penalises the middle class because middle class is the one living off their work and work (still) generates highest revenues compared to capital investment - but middle class is still below the level where they can afford good tax lawyers to optimise their taxes;
- asset (capital) tax penalises the rich, because they have accumulated the most capital proportionally to their revenues and consumption.

To me, it's fairly clear which group should be taxed the most - yet, in practice, asset tax is the only one that is considered least orthodox or normal of the three. Oh the glories of oligarchic democracy!

[Martinus]

Incidentally, it also makes more sense from the purely utilitarian perspective - outside of investment into people, such as health care or education, the government infrastructure, utilities and resources are spend mainly on protecting assets of the people, not their revenues or consumption. It is only fair that whoever has biggest assets should pay the most.

And there is also the benefit of simplicity - unlike revenues or consumption, assets are not easy to move (or hide) - you want your mansion to be in London, not Bumfuck, Cyprus, for example. So you should pay where you keep it.

[MadImmortalMan]

Ah, but focusing on income is a great way to distract people from wealth because most people understand income acutely. All the talk of income and gini things and whatnot is the best thing the rich have to distract the anger of the poor off of them and onto the less-poor.

[crazy canuck]

You are certainly correct that efficient tax systems do not work well in countries that are corrupt or do not have good enforcement infrastructure.  But I don't think that is a good counter example for why countries that are not corrupt and have good enforcement infrastructure should not employ good tax policy.

I don't know about Canada, but by that definition both US and the UK are corrupt countries that do not have good enforcement infrastructure. At least judging by what the rich and corporations get away with when it comes to paying taxes on their revenues.

Corruption is applying the rules?  The problem is the rules not people following the rules.

[Tamas]

Incidentally, it also makes more sense from the purely utilitarian perspective - outside of investment into people, such as health care or education, the government infrastructure, utilities and resources are spend mainly on protecting assets of the people, not their revenues or consumption. It is only fair that whoever has biggest assets should pay the most.

And there is also the benefit of simplicity - unlike revenues or consumption, assets are not easy to move (or hide) - you want your mansion to be in London, not Bumfuck, Cyprus, for example. So you should pay where you keep it.

You know you have a point there.

[alfred russel]

The problem with taxing all income identically is that some income has already been taxed.

This is a US centric example. The federal corporate tax rate for C Corps (most of your big ones) is 35%. State corporate taxes are on top of that--lets say combined we hit 40% in this example.

A high earner, depending on the state of residence, can have combined state and federal taxes of over 40%.

So if this high earner owns a part of a C Corp, the earnings of the C Corp will pay those 40% taxes, and then when it passes the income on to the owner in the form of dividends, the owner will pay say another 45% in personal taxes. It makes the C Corp an incredibly tax inefficient way to do business, and the result would be such corporations would be deterred from coming into existence.

The tax code acknowledges this problem, and the solution is that the owner in this case only pays the capital gains rate on the dividends, which is quite a bit lower.

A more ideal solution would be to cut corporate taxes to the bone--say perhaps 10%--and get rid of capital gains treatment like CC is proposing, but good luck with selling a major corporate tax cut to be paid for with higher personal income taxes.

[crazy canuck]

You demonstrate the political problem of implementing sound tax policy.  The .01% are huge beneficiaries of preferential taxation of dividends.   The problem is magnified if there is no inheritance tax.  But people who will benefit very little from the current system seem to think it actually works for them.

Those people will benefit either way. They will have access to huge salaries and investments.

But most people will never have huge salaries but they can chip away through saving and investing.

Yes, that is why an effective tax system would progressively tax all sources of revenue.  People who earn very little would pay no tax while people who earn progressively more will pay progressively more tax.

The problem with that is that revenue taxes are easiest to avoid by clever tax planning.

Under current systems yes.  But that is not what I was advocating for.