My tax plan
Overriding: Simplicity.
Graduated tax percents, as per usual
No deductions. All income is income. Deferrals, like 401(k), sure, but no deductions. Including my student loans and your house. Kids are no longer a deduction. Churches are treated like regular nonprofits, so have to show their paperwork.
Income up to the poverty line is untaxed. That's 12k per adult. Kids don't count.
So, 0% between 0 dollars and 12.5k. This is $0k.
Then, 10% between 12.5k and 25k. This is $1.25k.
Then, 20% between 25k and 50k. This is $5k.
Then, 30% between 50k and 100k. This is $15k.
Then, 40% between 100k and 200k. This is $40k
Then, 50% between 200k and 500k. This is $150k.
Then, 60% between 500k and a million. This is 300k.
Then, 70% between a million and two million dollars. This is 700k.
Then, 80% on everything over two million.
Boom, tax reform without giving a tax break to millionaires. I've pissed off everyone and H&R Block will smear me to death.
What do you hate about this?
Edit: Clarity and a typo. Stupid typos.
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Looks good.
ReplyDeleteNow do welfare.
The no deductions for kids is kind of a killer unless you're going to make some other kind of allowance for them.
ReplyDeleteMisha B That's why I was asking about welfare. You can't really separate the two.
ReplyDeleteAnd is there some sort of adjustment for cost of living in a certain area or are we expecting all the poor people to move where there are no jobs to be able to afford housing?
ReplyDeleteEnough with tax brackets. The only reason tax brackets exist is because a complex curve and complex math had to be usable by 1960's-era mortals, so the IRS printed books with pages and pages of tables. In order to keep the tables down to about ten pages, they broke up the curve into rectangular chunks and called them brackets.
ReplyDeleteBut now we can easily just define a curve like Taxes = Integral(((Income) ^ 1.5)/10000) or whatever and your computer (or phone) will do the work.
John Hattan Ah hah, one I can quickly address.
ReplyDeletePeople don't understand integrals. I want people to understand the tax system, which is part of why this is so overridingly simple. Expecting people to understand the calculus your 15 year old daughter does is unreasonable. We are just not that numerate a society.
Brian Ashford Welfare's harder. Here's my thought:
ReplyDelete1. Give everyone 12k/year, straight up cash in monthly installments. This counts as income.
2. free health care, especially preventive visiting a doctor. My 1/year doctor visit and twice a year dentist visits should be free hard stop. Anything that emerges from that should be taken care of without me seeing a bill (the notion of needing skin in the game is ridiculous), and with a maximum of asking me what I want.
All prophylactics, especially condoms and the bill and the iud, count as preventive maintenance.
Misha B I'm expecting people to respond to market demand. I don't want people to have to have jobs they hate and that don't pay them a living wage.
ReplyDeleteHave you ever done your taxes both with and without the kids to see what that's worth?
So this isn't a progressive tax? Which means that a person making $200,000.01 will pay $25k more in taxes than a person who made $199,999.99?
ReplyDeleteThe concept of a progressive tax is that everybody is taxed the same rate on the same level of income. If you make $200k and I make $250k, then you and I pay the same amount on the $200k, but I pay 50% on the extra $50k that I have.
That's the reason for the integral. Instead of basing the tax on the position in the curve, it's based on the area under the curve.
What? No, its's progressive. We're not calling it an integral because people can't integrate.
ReplyDeleteThe deduction I get for my kids is a lot less than what I spend on their basic needs. Food, clothing, a bigger home, daycare so I can work to afford the above. The exemption last year was $4050.
ReplyDelete> The deduction I get for my kids is a lot less than what I spend on their basic needs.
ReplyDeleteOf course it is! I don't think that's in doubt. My guess is folks make a whole lot less from the children tax deductions than they think, not that it is anywhere near the cost of raising a kid.
> The exemption last year was $4050.
Cool. So, you know what your taxes were last year, yeah? Toss it into the above, see if you come out above or below.
Guess: You will be better off in the above that you are in our ridiculously complicated tax system. And you'll be able to do the math in about a minute. It helps that you understand integrals, sure.
(Also, the way you've written it doesn't make it look like it's only on the amounts between the different points, thus John Hattan 's confusion. I only know what you meant because we've discussed it before.)
ReplyDeleteWilliam Nichols Is 12K enough?
ReplyDeleteFree health care is a no brainer.
Shoot there's a typo. One moment.
ReplyDeleteunder your system a single earner family making 250K is paying -188800- 86300 in taxes if I've done the math correctly.
ReplyDeleteEdit
There we go. Have fun.
ReplyDeleteMisha B I think you're off by at least a power of ten. Is there an extra 8?
ReplyDeleteAlso, slightly modified buckets. I wanted both 200k and 250k to be cutoffs, but only one can be.
Nobody has to integrate. They go to calculatemytaxes.com or whatever and type in their income, which is something people couldn't do in 1969 when they had to look up their bracket on paper.
ReplyDeleteFor a single person making 250k:
ReplyDeleteSo, 0% between 0 dollars and 12.5k. This is $0k.
Then, 10% between 12.5k and 25k. This is $1.25k.
Then, 20% between 25k and 50k. This is $5k.
Then, 30% between 50k and 100k. This is $15k.
Then, 40% between 100k and 200k. This is $40k
Then, 50% between 200k and 500k. This person has 50k in this, so that's 25k.
So, we get: 0 + 1.25k + 5k + 15k + 40k + 25k = 86.25k.
Roughly a third the income of a pretty rich person.
Great, now how do you account for that single person supporting multiple other people?
ReplyDeleteWill everyone now file separately under this new system? No more joint filing?
ReplyDeleteI am of two minds about this.
ReplyDeleteOn the one hand, what business is it of the gov'n'ment how people choose to live? That is, if folks choose to live alone, or in families, or in multi generational support structures, all are valid and I don't see a compelling moral reason to group the bills together.
I'm not sure I want the government rewarding specific types of families. That smells like a tax deduction and social engineering.
In the most obvious case we've got two adults, and the kids don't matter. So each adult in this situation counts as making 125k, and each ones tax bill is:
So, 0% between 0 dollars and 12.5k. This is $0k.
Then, 10% between 12.5k and 25k. This is $1.25k.
Then, 20% between 25k and 50k. This is $5k.
Then, 30% between 50k and 100k. This is $15k.
Then, 40% between 100k and 200k. This is 25k in this bucket, so 10k.
So, that'd be 1.25k + 5k + 15k+ 10k per person, or 31.25k/adult. That's a total of 62.5k, or a marriage discount of 23.75k.
Again, I'm really torn on the whole idea of rewarding people for getting married. I think I can make a justification that, well, marriage means greater stability means less turn around means less violence and that all sounds beneficial.
Misha B That is a thing on which I am torn.
ReplyDeleteJohn Hattan You've still got a black box that people don't understand. That's a thing I do not want. So, go ahead, argue to me the benefits of a black box tax system that 90% of people cannot understand.
ReplyDeleteAnd you still haven't accounted for supporting children.
ReplyDelete> Kids are no longer a deduction.
ReplyDeleteGreat, so kids still have to be fed, clothed and housed but you don't get credit for that. That's going to mess with a lot of people.
ReplyDelete... yes, your kids are your responsibility. I've never understood a tax cut for having children.
ReplyDeleteOkay. I'm tapping out before I tableflip.
ReplyDelete... Much as I don't understand a tax cut for owning a home, or paying student debt, or anything else. I don't see any good reason to link the two.
ReplyDelete... If we want to give people money for having children, we can do so outside of the tax code.
ok. Please only participate while it is fun.
ReplyDeleteIf you're going to give people money for having children outside the tax code, whatever vehicle you use for doing that will inevitably absorb all the complexity of the current tax code. And now people will have to fill out two chunks of paperwork every year. While one will be simple now, the other will be just as complex as before.
ReplyDeleteWilliam Nichols: Here's what I hate about this plan ... it seems to ignore the importance of a future generation in precisely the way that libertarians ignore the importance of roads.
ReplyDeleteIt looks (to me) like you're assuming it's always going to be there, it's always going to be of adequate quality, and that it's therefore fine to insist that you shouldn't have to pay for it.
Does that help you to understand why it might be worth having society bear some of the burden of child-raising? I can, in fact, elaborate if needed.
I hate that it is still based on income rather than wealth.
ReplyDeleteIf you're going to do a radical change that requires massive political capital, might as well make a change which does something about wealth inequality. You pretty much can't mathematically income tax your way out of inequality. (Unless you assume unlimited exponential growth, but that's also mathematically impossible.) The estate tax helps, though.
But let's get at what the progressive tax is supposed to do - it's supposed to make it such that those who get the largest benefits from society also contribute the most. Intuitively, this seems like it should match up with income, right?
WRONG. Cost of living is actually higher for those of us with less money and savings. It's expensive to be poor. Not only do most things inherently cost more (throwing away money on rent vs owning a place to live, car loans, health care, groceries not being able to buy in bulk or shop around, gasoline, etc), but there are also massive opportunity costs associated with needing to juggle around money to what can be afforded on a given month or year, opportunity costs associated with lack of job flexibility, practical inability to move, etc...
The bottom line is that income is not such a good indicator of who gets the largest benefits from society, whereas wealth is. Or really, wealth + income, because there are ways the wealthy could game the system if taxation were based on wealth alone. In particular, the wealthy could turn around their income into "gifts" which to various entities which still benefit them.
Fundamentally, though, I think we need to recognize that Capitalism is inherently unfair and artificial. It is a system which purposefully funnels money from those with less toward those who already have more. It is important to recognize that there is nothing fair or natural about this, despite what free market worshipping libertarians faithfully believe. Government taxation and spending are tools to address the unfairness and unnaturalness of Capitalism. We should not restrict ourselves to taxing income in order to achieve the goal of a more civilized and fair society.
But, Tony Lower-Basch, I do think we should subsidize children:
ReplyDelete1. Schools, and I'm happy for these to be much longer. I'm also happy to pay teachers more. Much more.
2. Health care, including prenatal, birth, and all them shots and check-ups kids need.
3. Breakfasts, lunches at school. I'm happy with providing 3 square meals a day at school.
4. After-school activities.
5. A safe space to sleep, as needed.
I'm completely happy with our schools providing as much child-care as necessary, from short days to 24-hour support.
I'm not happy to do this through taxation.
William Nichols I made $123,456.78 last year. How much would I pay in taxes under your simple plan?
ReplyDeleteIsaac Kuo: how would you envision a wealth tax? We already have property taxes on houses, and cars depreciate so fast that there's no point in taxing them. It seems crazy to suggest assaying personal property and household goods for tax purposes (which is a massive loophole, given how art is used to launder money).
ReplyDeleteHistorically, we've subsidized investments, and doing so has had a generally positive effect on the economy, so I'm leery of changing the sign on that.
replacement: I didn't understand right. Trying again: $30,632.71
ReplyDeleteWilliam Nichols: another thing: the tax code is structured the way it is (high basic value, many deductions) for a reason. The idea is that if most people get a small refund, which gives them an incentive to actually file their taxes. Tax compliance is important and difficult.
ReplyDeleteJonathan Beverley [citation needed]
ReplyDeleteWilliam Nichols: which fact?
ReplyDeleteThat we have loads of deductions such that people will get a refund.
ReplyDeleteJonathan Beverley How does the income tax work? It works because we make it the law to report income - both by the employers and employees, as well as other sources of income. The IRS doesn't do a detailed audit of everyone every year. They just do enough audits and punishment to compel everyone else to comply (enough).
ReplyDeleteIn practice, wealth can be estimated via income and expenses. The most useful tools are bank records, including credit card purchases. And we should do taxes the way many other countries do it - if the tax department is already calculating tax based on what employers/banks/etc have reported, why make individuals duplicate the calculations and paperwork? (Answer - TurboTax and HRBlock lobbyists pay Congress to keep it that way.)
Okay, so cash purchases won't show up automatically on this. How much of a problem is this? I guess we shall see. The "invisibility" of cash payments to the IRS has not exactly caused a surge in high income cash-only employers and employees.
As for investments - we can carve out deductions for the sort of investments we wish to encourage. Like investments in clean energy. Beyond that? It's really a question of - what else are they going to put their money into? They can either put their money into investments which can give them some return, or they can buy lots of dumb stuff, which will still get taxed anyway. Or they can give the money away to others, which has a more direct effect of spreading wealth.
Isaac Kuo: reporting income is easy, it's a cash payment between separate legal entities with a clear value. Asking people to assess their personal wealth is a disaster. I have hundreds of books in my house, how much are they worth? I have a huge mess of electronics, with a total purchase price in the thousands, what's it worth now? etc.
ReplyDeleteAs for investments, the point of the incentives is to change average people's behaviour away from current consumption (not the top 10%, they're already at the point where they're having trouble spending all their money, the investment incentives are for the bottom 90%). And you still have yet to convince me that we can usefully track and tax expensive art pieces.
William Nichols: I can't find cites for it. I've got lots saying how the majority (60%-75%) get refunds, and few (<20%) are owing, but the "if you get a refund, you're a chump" articles swamp my ability to find rational discussion.
ReplyDeleteI'm going to have to fall back on "it's obvious". Getting people to file when they expect a refund is //much// easier than when they expect to owe.
Unfortunately Misha has tapped out of this so I'm not sure if this is her issue or not... You seem to be treating the having of children as a luxury. Do you intend that? While i don't really understand people's desire to have children, I can see where saying "You need to be rich enough" might be offensive to people.
ReplyDeleteJonathan Beverley It is easier, but this is by no means my understanding of the reason that we have a complicated tax code with a lot of deductions.
ReplyDeleteWe have a complicated tax code with a lot of deductions because making laws is messy, with a lot of historical garbage involved. That's the real reason.
Now, the reason we have to file, instead of it being done automatically by the IRS? That's a conspiracy by H&R and similar companies.
Jonathan Beverley You act as if this weren't a problem solved every day by insurance companies and ordinary folks dealing with flood and fire damage.
ReplyDeleteIf your house were destroyed by a wildfire, you'd figure out a number to give the insurance company or FEMA. It's not some unsolvable mess, and it doesn't have to be precise in order to be good enough.
This reads a little heated.
ReplyDeleteIsaac Kuo, Jonathan Beverley, are you both still having fun?
William Nichols: I'm still good.
ReplyDeleteIsaac Kuo: while I have not been though the process of filing fire/flood insurance personally, I've read stories, and never gotten the idea that it's simple. Yes people can do it, but I'm thinking it's much more effort than the current tax system.
ReplyDeleteInsurance claims also tend to come with on-site assessments by professionals. Something that doesn't scale to all households, every year.
Then there are the privacy concerns. Would this give the IRS legal authority to enter your home to assess your personal property? Sure, they'd have to give you notice, but that sounds rife for potential abuse.
I see the assessment as something that really only has to be done once, other than an audit. From year to year, the estimate of your wealth is largely updated via bank statements (including credit card purchases).
ReplyDeleteThe big point is that it's something that the IRS can do without ordinary folks filling out paperwork every year. Most folks would just confirm that the IRS estimate is okay. The actual "paperwork" that matters is automated electronic form data transferred from banks.
The current system is an insane amount of time and effort because it needlessly makes ordinary folks fill out forms which are completely redundant. The IRS already has all of the data it needs. You gather data, calculate taxes, and fill out forms to try and hopefully match the numbers the IRS already has. If you get them wrong? You're punished for it. This system of having ordinary folks fill out tax forms is pure waste designed to compel folks to pay money to Turbo Tax and H&R Block.
As for how quickly such an assessment can be done - well, here in Baton Rouge we just had major flooding a year ago. One person we took in had his place wiped out...a little bit could be salvaged, but not much. He had his on site assessment and FEMA check within a couple months. With competent staff, resources, and prioritization it can be done very quickly and efficiently. The FEMA response in Baton Rouge last year was pretty fast and we had $15 billion of damage to assess.
William Nichols When you say no deductions, are you also including things like business expenses? (I'm thinking of a sole proprietorship where a car, printer, etc. are required.)
ReplyDeleteMichael Prescott Correct. I don't see why business decisions should result in lowered taxes. Would you like to take up that battle?
ReplyDeleteAren't tax deductions for business expenses usually effectively a refund on VAT? This scheme doesn't include VAT so it shouldn't be a problem.
ReplyDeleteBusinesses normally pay taxes on profit, not on revenue. Changing that is huge.
ReplyDeleteFurther thoughts: the basic economic unit is the household. So I think tax should be assessed against that. This means dividing income (evenly) between adult members.
ReplyDeleteSince no one should be taxed into poverty, and children are people, there should also be some compensation for that. I don't have a good answer for how. Making it a static deduction provides a larger incentive to the poor, but making it a proportional one makes them tax incentives for the rich.
While I love the simplicity of the lower brackets, the real point here is the high brackets, right. Getting an 80% tax bracket would put us close to Ike-taxation levels. You know, the 50s.
ReplyDeleteAll in favor of much higher rates at the top. In terms of business expenses as deductions, I'm not sure. In my line of work, I need about $1k of equipment expenses a year, which is very little. For someone who needed a hot dog cart or a taxi (plus gas and maintenance), I imagine the implications of not writing those of would be enormous. But I don't see this as a moral issue, just not sure of the consequences. Would it push people out of businesses that relied on equipment and consumables?
ReplyDeleteEDIT: Actually no, not just physical goods but services. I think disallowing business expenses says "we want short supply chains".
If you remove tax breaks from businesses then they will probably just increase the price of their products and services to compensate, passing that cost onto the consumer.
ReplyDelete... because businesses pay so much income tax now.
ReplyDeleteWell, it depends on the business and size there of but sure.
ReplyDeleteTaxes are just one part of a larger puzzle of social support structures, welfare, health care, schooling, basic incomes, job compensation... you mess with one, you often need to mess with the others so it's really hard to debate these sorts of things in a vacuum.
If you change business tax law such that you tax gross revenue rather than net profit, our entire economy shudders to a stop as all industries need to renegotiate all contracts and recalculate everything they do. You'd need multiple PhDs spending years of analysis to figure out what would happen.
ReplyDeleteIt's not "getting rid of a tax break", It's total fucking insanity.
One question: does a person earning 200001$ a year pay the same amount as a person earning 499999$ a year?
ReplyDeleteWhat's the difference between earning 199999$ and 200001$?
The person making $499999 would pay $149999 more than the person making $200001.
ReplyDeleteThe person making $200001 would pay $.90 more than the person making $199999.Michel Kangro
Misha B Thanks, now I understand. Given appropriate other money transfers (UBI for starters), this system sounds fine.
ReplyDelete