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Sergio Stefanuto
Joined: 14 May 2009
Location: UK
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 Posted: Sun Nov 14, 2010 5:27 am Post subject: |
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| Fat_Elvis wrote: |
| Could you explain how lowering taxes would help lower the deficit? |
Imposing high taxes to generate revenue is predicated upon the ability of the state to collect the relevant monies, and the willingness of people to pay them. In short, that lower tax rates yield lower revenue is an empirical question and not a foregone conclusion.
Bob earns 10 million per annum at X Systems. On almost all of that, he is obliged to pay 40% in income tax. Unhappy with having to pay almost 4 million in tax, Bob started a company based in Switzerland - Bob Enterprises - who in turn are paid 10 million per annum by X Systems. Bob Enterprises then pays Bob an annual salary of 40,000, upon which Bob pays 20% in tax
Dodging taxes really is this simple. And rich people tend to be much cleverer with money than bumbling politicians and bureaucrats - that's why they're rich - so the scenario above is just one of the more crude examples of the tricks that people employ. Dodging taxes is inevitable in most cultures, because people are greedy, and high rates of taxation encourage the inevitable all the more. If however Bob was permitted to keep 90% of his income as opposed to 60%, he might, just might, be willing to obey the law and pay his taxes, meaning the state receives 10% of 10 million as opposed to 20% of 40,000.
Well, this was always my view until recently. The ease with which one can dodge taxes means that thousands of wealthy people will dodge them no matter what the rate. So the solution isn't in fact to reduce income taxes; the solution is to abolish income tax and replace it with taxes that a reasonable person cannot avoid, save of course by emigrating. Mises mentioned some examples. I don't agree with any of them, but they are certainly superior to income tax. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Sun Nov 14, 2010 9:57 am Post subject: Re: ... |
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| Nowhere Man wrote: |
I'm not sure why concepts such as the TVA and WPS haven't been resurrected to combat job loss. Maybe because it would be seen as socialism? Then again, the US Armed Forces are a model of socialsim... |
To frame it another way, why has recovery money been aimed at Wall Street instead of where everyone else lives?
Well, that's kind of the central driver of this thread. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Sun Nov 14, 2010 10:06 am Post subject: |
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| Sergio Stefanuto wrote: |
| Fat_Elvis wrote: |
| Could you explain how lowering taxes would help lower the deficit? |
Imposing high taxes to generate revenue is predicated upon the ability of the state to collect the relevant monies, and the willingness of people to pay them. In short, that lower tax rates yield lower revenue is an empirical question and not a foregone conclusion.
Bob earns 10 million per annum at X Systems. On almost all of that, he is obliged to pay 40% in income tax. Unhappy with having to pay almost 4 million in tax, Bob started a company based in Switzerland - Bob Enterprises - who in turn are paid 10 million per annum by X Systems. Bob Enterprises then pays Bob an annual salary of 40,000, upon which Bob pays 20% in tax
Dodging taxes really is this simple. And rich people tend to be much cleverer with money than bumbling politicians and bureaucrats - that's why they're rich - so the scenario above is just one of the more crude examples of the tricks that people employ. Dodging taxes is inevitable in most cultures, because people are greedy, and high rates of taxation encourage the inevitable all the more. If however Bob was permitted to keep 90% of his income as opposed to 60%, he might, just might, be willing to obey the law and pay his taxes, meaning the state receives 10% of 10 million as opposed to 20% of 40,000.
Well, this was always my view until recently. The ease with which one can dodge taxes means that thousands of wealthy people will dodge them no matter what the rate. So the solution isn't in fact to reduce income taxes; the solution is to abolish income tax and replace it with taxes that a reasonable person cannot avoid, save of course by emigrating. Mises mentioned some examples. I don't agree with any of them, but they are certainly superior to income tax. |
Tax dodging is a huge problem, and I think the game winner for the reasonable taxation argument. I read somewhere that even Bono dodges taxes in the way you describe, re-locating his income's jurisdiction to a tax haven.
Although I present land taxation as a possible solution, it carries with it a major problem: it places the State in a position where it benefits from, and thus encourages, harmful land speculation. You see this in China.
I think taxation, for this reason, should be like alternative energy, spread across many sources.
But some forms of taxation are worse than others. For example, corporate taxation, which encourages waste by taxing only profit, the difference between gross earnings and expenses. We should switch over to corporate licensing fees, but this might get complicated if we properly adjusted for actual corporate presence instead of letting the state of Delaware get rich (I think European countries might have fewer problems with this approach). |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Sun Nov 14, 2010 3:37 pm Post subject: |
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Here's how the government creates confidence. They lie about how many people are employed. See, if you lie about how many are employed then we get 'confidence' and this confidence causes people to become employed.
http://www.businessinsider.com/wow-check-out-how-blatantly-our-government-misled-us-with-the-october-jobs-numbers-2010-11
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Remember last Friday's payrolls numbers--the ones that blew away expectations about the number of jobs created and got everyone talking about recovery again?
Well, even at the time those payroll numbers were confusing, because the other part of the jobs report--the "household survey"--showed yet another crappy number.
But by pointing to the crappy household number and ignoring the payroll number, the bears seemed to be trying to make lemons out of lemonade.
But it turns out that there was a simple reason why the payroll numbers looked so good--a reason that had nothing to do with underlying strength of the jobs market.
What was that reason?
The government changed the "seasonal adjustment" it made to the payroll numbers--and, in so doing, boosted the number of "jobs" created in October by 100,000.
Stephanie Pomboy of MacroMavens (via John Mauldin) explains:
" 'The seasonal bar which the payroll data must jump was (inexplicably and dramatically) lowered from prior Octobers.
" 'Thus, in October 2009, the BLS set the bar at 870,000 jobs, similar to the 840,000 it anticipated in October 2008. This year, by contrast, it lowered the bar to 768,000. Mumbo, jumbo, payrolls presented "an upside surprise" of 100,000.'
Alan Abelson of Barrons (again via John Mauldin) adds the following:
"According to John Williams at Shadow Government Statistics, the BLS' fiddling with the figures via what he calls 'seasonal-factor games' actually created 200,000 phantom jobs last month. John cites such finagling as the reason his prediction of an October decline and a rise in the jobless rate was wrong. It also explains why seasonally adjusted payrolls were revised upward by 110,000 in September, including 56,000 in August."
In other words, it wasn't that there were a surprising number of jobs created in October. It was that the government changed its "seasonal adjustment" assumption in a way that made it look as though there were a surprising number of jobs created in October. |
They have been changing these assumptions almost every month for 2 years. I've documented it in this thread probably a dozen times. Now, if two years or so of juking the stats plus all the msm/gov propaganda hasn't created confidence (or a unicorn) why not now change course and focus on the actual damn economy. All the confidence in the world won't make broke people spend money. They're broke. |
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jaykimf
Joined: 24 Apr 2004
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| Posted: Sun Nov 14, 2010 6:00 pm Post subject: |
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| mises wrote: |
There should be no taxes on earned income. Taxes should be applied to organizations and unearned income (claims on wealth). Property taxes, capital gains taxes, resource taxes, taxes on waste/pollution and taxes on equity/debt transactions are more fair. Sales taxes are sensible as well. Tax the income that is not earned. Tax things that the society wants diminished.
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So, NBA stars making $10 million a year pay no taxes, while some widow in Iowa whose mortgage on the farm is upside down is stuck paying property taxes? That sounds perfectly reasonable and fair. Another of your well thought out proposals. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Sun Nov 14, 2010 6:59 pm Post subject: |
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| Professional athletes are an exception to the norm. And yes, the farmer pays land taxes. |
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Fox
Joined: 04 Mar 2009
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| Posted: Sun Nov 14, 2010 7:58 pm Post subject: |
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You (mises) mention taxes should be used for things society wants to diminish. Why can't excessive salaries fall into that category? I certainly think CEOs making so much in excess of their workers is a social problem, and I'd like to see it diminished. Income tax can achieve this, and in fact, our constant lowering of income tax has probably exacerbated this gap.
I don't agree with the idea expressed by certain posters that the only response to tax dodging is to give up income tax (or lower it in hopes of convincing people to pay it). The answer to people dodging taxes is to mend the intentionally-created loop holes that allow them to tax dodge. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Sun Nov 14, 2010 8:11 pm Post subject: |
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| Fox wrote: |
| The answer to people dodging taxes is to mend the intentionally-created loop holes that allow them to tax dodge. |
You have any evidence of their intentional creation? Because I operate under the presumption that governments like to collect their tax moneys, and will do what is necessary to get it. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Sun Nov 14, 2010 8:17 pm Post subject: |
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| Why can't excessive salaries fall into that category? I certainly think CEOs making so much in excess of their workers is a social problem, and I'd like to see it diminished. |
I don't see high salaries as a problem. Executive compensation is a problem because they get paid in structures that incentivize them to maximize short term gains - see Robert Rubin and Meg Whitman and dozens upon dozens of others. Executive compensation is extremely complicated. If we push them towards salaries alone they'll still front load debt to maximize profit. Stock options will do the same. I don't know how it is fixed but I don't think income taxes are the fix. The classical economist will say that shareholders should hold execs to account. The shareholders have not been doing so, largely because they're mostly pension funds etc and the managers of those funds come from the same pool of applicants as the execs they oversee. They don't want to push down wages for 'talent' (as the arrogantly refer to themselves).
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| I don't agree with the idea expressed by certain posters that the only response to tax dodging is to give up income tax (or lower it in hopes of convincing people to pay it). The answer to people dodging taxes is to mend the intentionally-created loop holes that allow them to tax dodge. |
Yeah, that's fair. Without publicly financed elections they'll just buy themselves new loopholes. I guess we have to reform in order of importance. |
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Fox
Joined: 04 Mar 2009
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| Posted: Sun Nov 14, 2010 8:26 pm Post subject: |
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| Kuros wrote: |
| Fox wrote: |
| The answer to people dodging taxes is to mend the intentionally-created loop holes that allow them to tax dodge. |
You have any evidence of their intentional creation? Because I operate under the presumption that governments like to collect their tax moneys, and will do what is necessary to get it. |
Is that an assumption that stands up to scrutiny, though? We know that individual elected representatives have a history of putting the interests of their "backers" ahead of those of the nation, actively working to not only lower tax rates, but to actively channel tax revenue to parties they consider themselves allied with. Maybe a rational government with a single governing intellect would behave like you describe, but I don't think we can assume our government does.
With regards to your question, however, no, I have no tangible evidence at hand. I only have the reasoning that tax rates have gone down over time, and taxes have become easier to avoid over time, so someone is clearly working towards that end. The alternative hypothesis -- that the people in charge of making tax law are just fundamentally idiotic -- doesn't stand up to scrutiny in my eyes. Individual broken policies which allow for tax dodging might be possible to understand (assuming representatives went on to try to amend them), but what we see in the United States is just too systematic to shrug off as anything but intentional.
Even if one wants to believe that the majority of elected representatives are stupid, the people who write the bills for them certainly aren't. I think it would actually be incredibly remarkable if our tax-code, vulnerable as it is to dodging and friendly as it is to corporations and the ultra-wealthy, were simply the result of misjudgment after misjudgment after misjudgment. |
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Fox
Joined: 04 Mar 2009
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| Posted: Sun Nov 14, 2010 8:48 pm Post subject: |
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| mises wrote: |
| Executive compensation is extremely complicated. If we push them towards salaries alone they'll still front load debt to maximize profit. Stock options will do the same. I don't know how it is fixed but I don't think income taxes are the fix. |
Tax any form of compensation executives can possibly receive and it destroys the incentive to try excessively reward one's self, since you're just paying the government at that point. Salaries need to be kept at a level where the executive's best option is to stick with the company for the long-haul, rather than earning so much in a year or two that they are essentially set for life; taxes can help create that ceiling. "Companies will flee the United States and move overseas and our wealthy saviors will abandon us," is the natural response. Trade barriers help deal with that; let them go overseas, they'll be paying more in tarriffs than they would be in taxes (if the barriers are setup well), and new businesses will form in the United States to outcompete them (or, if they give up on doing business with the United States entirely, new businesses will just set up shop to meet the demand in question).
No one needs tens of millions of dollars a year for their labor. No one. This idea that we have to keep allowing the elite to walk away with such huge amounts of our national resources or else they'll destroy our economy by "leaving us" is one we need to get past. What other option do we really have? Keep letting wealth seep into the upper-crust of society, watching the average American's standard of living crumble and our nation go further and further into debt? Watch as important social programs like Social Security crumble due to lack of funding, as apologists claim that the cut-backs are "saving" it? Globalization is not helping our nation, and neither is tax-policy that favors the wealthy.
| mises wrote: |
| Quote: |
| I don't agree with the idea expressed by certain posters that the only response to tax dodging is to give up income tax (or lower it in hopes of convincing people to pay it). The answer to people dodging taxes is to mend the intentionally-created loop holes that allow them to tax dodge. |
Yeah, that's fair. Without publicly financed elections they'll just buy themselves new loopholes. I guess we have to reform in order of importance. |
This is one reason why I feel Citizens United was such a step in the wrong direction. More corporate money -- or union money, or pretty much money from any organization -- in politics just creates an atmosphere of de facto bribery. I suppose that's only barely within the scope of this thread, though. |
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Sergio Stefanuto
Joined: 14 May 2009
Location: UK
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| Posted: Mon Nov 15, 2010 9:05 am Post subject: |
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| jaykimf wrote: |
| So, NBA stars making $10 million a year pay no taxes, while some widow in Iowa whose mortgage on the farm is upside down is stuck paying property taxes? |
A basketball player occupies no land and isn't therefore getting in anybody's way. A farm, on the other hand? The land occupied by a basketball court, where little kids play basketball, should be liable for land tax. The land occupied by the basketball club the player plays for should also. But a professional basketball player should be entitled to every single cent that his employer sees it fit to pay him, because, though his salary of $10m may seem excessive to some, this must be a very tiny amount in comparison to the profits the player generates for his employer. A club-and-player arrangement is a purely voluntary exchange, whereas a farm, if the only reason for its existence is hiding behind an artifical wall of government folly, namely subsidies & tariffs, is an abomination. But even if the farm exists solely on its merits - in which case, of course, good luck to it! - it still ought to be liable for land value taxation. The reason it's so crucial to impose taxes on land (and they must be fairly punitive, otherwise there's little point) is to encourage land, where occupied, being done so usefully. You don't have to agree with me that it should replace income tax, however. That usually accompanies, but not necessarily. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Mon Nov 15, 2010 9:32 am Post subject: |
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| Quote: |
| Tax any form of compensation executives can possibly receive and it destroys the incentive to try excessively reward one's self, since you're just paying the government at that point. Salaries need to be kept at a level where the executive's best option is to stick with the company for the long-haul, rather than earning so much in a year or two that they are essentially set for life; taxes can help create that ceiling. |
For this, raise capital gains taxes. The salaries alone are not usually in the millions. They receive options etc. They also get cars, low interest (or no interest) loans, private planes etc. A straight income tax on huge earners is not going to claw much back. I don't support an income tax for low to upper middle class people. I don't really care about the ultra wealthy. Let them eat cake.
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| "Companies will flee the United States and move overseas and our wealthy saviors will abandon us," is the natural response. Trade barriers help deal with that; let them go overseas, they'll be paying more in tarriffs than they would be in taxes (if the barriers are setup well), and new businesses will form in the United States to outcompete them (or, if they give up on doing business with the United States entirely, new businesses will just set up shop to meet the demand in question). |
I completely agree. Having free trade with similar states is one thing (ie a trade agreement between two very similar states like Canada and AUS) but free trade with states that have very low regulations, very low wages and huge subsidies from their state and a high cost/regulation low subsidy state is really idiotic. What do we think is going to happen?
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| No one needs tens of millions of dollars a year for their labor. No one. This idea that we have to keep allowing the elite to walk away with such huge amounts of our national resources or else they'll destroy our economy by "leaving us" is one we need to get past. |
That's fair, but we need to focus on why our societies are producing this inequality instead of just trying to tax the problem away. Why are sports stars earning millions? Could it be that the state is paying their bills? If I open a Subway sandwich shop will my city build me a facility and then charge me a dollar rent a year (which is what Edmonton is going to do for the Oilers)? It sure would help me get rich if I didn't have to pay overhead. Maybe we should stop paying the bills of sports teams? This extends to other rich pricks. Our societies subsidize them. I've pointed out in the past that the state does the lions share of scientific research (only they have the capital because banks won't generally lend for R&D) and the gains from this research is privatized. How insane? Look at QE2. Who benefits? Not me. Not you.
http://www.rollingstone.com/politics/matt-taibbi/blogs/TaibbiData_May2010/233953/83512
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| What other option do we really have? Keep letting wealth seep into the upper-crust of society, watching the average American's standard of living crumble and our nation go further and further into debt? Watch as important social programs like Social Security crumble due to lack of funding, as apologists claim that the cut-backs are "saving" it? Globalization is not helping our nation, and neither is tax-policy that favors the wealthy. |
You know that I am 100% in agreement with you. I do not see it as a tax issue but a political-economy issue. Tax is one tool. Why did the top 100 hedge fund managers take home an average of 1 billion dollars last year? That is not a tax issue.
And social security.. What a joke this commission is. Blow a couple trillion on the banks, a few trillion on the wars and then pay for it with diminished "entitlements"? Americans have been paying for SS. It isn't an entitlement. It is a deferred compensation plan that has been paid for! Every month Americans pay for SS. Here's a little secret: In the same way that the Fed capitalized the banks it can capitalize social security.
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| This is one reason why I feel Citizens United was such a step in the wrong direction. More corporate money -- or union money, or pretty much money from any organization -- in politics just creates an atmosphere of de facto bribery. I suppose that's only barely within the scope of this thread, though. |
It is 100% in the scope of this thread.
Watch this vid about corporate personhood. It will make your head explode.
http://videos.howstuffworks.com/sysk/35433-how-corporate-personhood-works-video.htm |
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Kuros
Joined: 27 Apr 2004
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| Posted: Mon Nov 15, 2010 9:50 am Post subject: |
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| jaykimf wrote: |
So, NBA stars making $10 million a year pay no taxes, while some widow in Iowa whose mortgage on the farm is upside down is stuck paying property taxes? |
Under mises' and Sergio's proposals, NBA stars wouldn't pay taxes on earned income. They would pay non-essential consumption taxes, capital gains taxes on subsequent gains from investments, sin taxes,
Personally, I come down for income taxes, but I think we can make the case for this while giving their idea its full due.
But to take jaykimf's side, shouldn't people making over $100,000/year pay income taxes?
I know this is the dreaded Time magazine reporting on one of those infamously inaccurate 'happiness' studies, but . . .
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Researchers found that lower income did not cause sadness itself but made people feel more ground down by the problems they already had. The study found, for example, that among divorced people, about 51% who made less than $1,000 a month reported feeling sad or stressed the previous day, while only 24% of those earning more than $3,000 a month reported similar feelings. Among people with asthma, 41% of low earners reported feeling unhappy, compared with about 22% of the wealthier group. Having money clearly takes the sting out of adversities.
At $75,000, that effect disappears. For people who earn that much or more, individual temperament and life circumstances have much more sway over their lightness of heart than money. The study doesn't say why $75,000 is the benchmark, but "it does seem to me a plausible number at which people would think money is not an issue," says Deaton |
It really is harmless to tax people exceeding that adequate amount of money about 25% of their salary. Going from there, we want people invested in their government and society, so those making less than $100,000 should still be taxed on income, but to a much smaller proportion, say the Deficit Commission's 8% and 14% brackets. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Mon Nov 15, 2010 10:09 am Post subject: |
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| Kuros wrote: |
But to take jaykimf's side, shouldn't people making over $100,000/year pay income taxes?
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100k is way too low. The private Catholic school near me charges 1k/month per student. Given lax immigration enforcement, I'll not put my kids into an esl factory. I lived across from an American inner city public school for a short time. My kids will have nothing to do with that. 24kyr for two kids. I'm being pressured for three. 36k/yr. Ok then instead we'll move to the suburbs where we can use the public schools and pay 400k for a box to live in. Need two cars then. Gas, insurance, depreciation, repairs. Oh, I need excellent private medical insurance. 5 people on a medical plan.. How much is that? How much out of pocket and how much diminished salary? I'm worried about retirement and need to put away a huge chunk of my salary. 3 kids going to university in a couple decades. What will tuition be? I'll not let my kids become debt-serfs so I'll pay for it. 100k is completely insufficient. Just to keep above water + retirement I'll need at least 10k/month. Middle class ain't what it used to be. |
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