NationStates Jolt Archive

Feel free to check my math, I've provided all my sources.

The jist of this proposal is to create a flat income tax rate at 29% supplemented by a $4720.50 welfare payment (4720.50 is the poverty line for an individual in America as of 2006), to create an inheritance tax, and to (for the conservatives out there) create an outsourcing tax to give companies an incentive not to hire foreign workers (thus protecting domestic workers).

This also might be surprising, but with these three taxes, no other taxes would be necessary. No more estate tax, no more sales tax, no more taxes except for just a primary income tax. The 29% would fund the national budget as of 2006 AND create a surplus.

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In much of this world, economics is defined by some form of capitalist market; China is obviously one example, although its market is oligarchial. Obviously throughout history, society organizes itself into social classes because of the distribution of wealth. However, this organization and collectivization of power and wealth is what has plagued humanity since the dawn of time, and it is only now that the Machine can be geared towards the socialization of society, and eventually, equalization of wealth and power.

I propose that the handicapped, the elderly, the people unable to work or apply themselves would deserve government benefits (i.e. welfare), and would receive it, because no one who is incapable of earning the benefits of labor deserves to be left behind. I abhor national systems in which we in effect abandon those who are in dire need of government aid. I feel that those who are without jobs shouldn't have to rely on handouts, but they shouldn't be written off as expendable. Welfare programs geared towards those who are without a job should help them acquire a new job, or in the case of unskilled unemployed workers, provide them with the skills they need to be able to work efficiently and productively in order to maximize our society's prosperity.

However, this plan of reform does not mean it replaces Social Security. Social Security seems here to stay, at least for now, as a welfare institution. By increasing the standard flat tax by a small amount, Social Security could even be no longer necessary; the social benefits of the proposed plan below would cover the Social Security benefits.

I propose a standard 29% flat tax on all income earners. There would also be an annual "social benefit" payment, equal to the poverty line ($4720.50 according to [1]), to be given to every working 18-64 year old, high school graduate citizen. The benefit payment itself is to assure citizens that no productive worker will fall below the poverty line, unless they do so by their own actions. According to [2], the net national income for America is $11.0593 trillion, and knowing that the American budget is $2.466 trillion according to [3], and since my proposed refund payments to working adults amounts to $706,674,002,805, the revised budget would be approximately $3.173 trillion. In order to fund the national budget, a flat tax of 28.69% would be necessary. If we round that figure off to 29%, we could create surplus, and with the inheritance tax and progressive outsourcing tax, an even larger surplus could be produced, and not be unreasonable to any income bracket or productive citizen in this nation.

The benefit payment is to be used as every individual citizen sees fit, and eventually it will recirculate into the American economy. Therefore, benefit payments to all income earners would be intended as basic welfare. Each citizen makes their own choices, and the money is intended for their best interests, in the interests of economic stability of the work-force. The American population between the ages of 18-64 is 178,388,000 according to [4], and since 83.92% of that population has graduated high school, it would total 149,703,210 people in American who are 18 years or older and have a high school diploma or similar degree. With each of those people getting payments equal to the individual poverty line, which is $4720.50, the social benefit payment funding would total a net $706.674 billion.

(The following examples follow the use of my formula to determine after-tax income under my system: (-x)0.29+(P)+(x)=I; where "x" represents pre-tax income, where "P" represents [poverty line] benefit payment, and where "I" represents after-tax income.)


*Person A makes $4720.50 and pays a net total of $1368.95 in flat income taxes, at the rate of 29%. At the end of the year, Person A receives a benefit payment of $4720.50, making their total income at the end of the year, after taxes, $8072.05.

*Person B makes $10,000 and pays a net total of $2900 in flat income taxes, at the rate of 29%. At the end of the year, Person B receives a benefit payment of $4720.50, making their total income at the end of the year, after taxes, $11820.50.

*Person C makes $16,277.59 and pays a net total of $4720.50 in flat income taxes, at the rate of 29%. At the end of the year, Person C receives a benefit payment of $4720.50, making their total income at the end of the year, after taxes, the same as their pre-tax income, making this the break-point for a tax rate of 29%.

*Person D makes $1,000,000 and pays a net total of $290,000 in flat income taxes, at the rate of 29%. At the end of the year, Person D receives a benefit payment of $4720.50, making their total income at the end of the year, after taxes, $714,720.50.

This would increase spending power, and thus inflation. However, this system is inflation-proof. If prices go up, the poverty line goes up. If the poverty line goes up everyone's benefit payments go up, as well as the break-even point. So, the wealthy couldn't raise prices to keep their elite status. It would just bring everyone else closer to them. The only way that they could keep themselves above everyone else would be to increase efficiency enough to counteract the inflation. That would be acceptable, as it would still allow for everyone to be above the poverty line.

This would also decrease unemployment. First, it would encourage anyone not employed to get a job, so as to have income and earn their benefit payment. Second, it would allow people who currently work 40+ hours per week more leeway with their money. They could therefore work less hours per week. This work would still need to be done, however, which would create job opportunities for the currently unemployed, so they could earn their benefit payment.

Inheritance Tax
I propose an inheritance tax (equal to the flat income tax rate) on individual inheritances of hard cash (meaning actual money, such as inheriting a bank account; and doesn't include stocks, bonds, or physical objects). The reasoning for this is simple: inheritance is a form of income, from one person to a new person, meaning that it must be subject to income tax laws.

Outsourcing Tax
I propose a progressive outsourcing tax for corporations. Larger percentages of foreign-based labor for American companies would result in higher taxes for said companies. Lower percentages would lower the tax. In this way, companies are encouraged to employ Americans, rather than fire thousands, as has been happening for years, and outsourcing overseas.

The rate begins at 10% of the labor pool being outsourced, with the tax beginning at 50% of the percentage of workers being outsourced. For example:


10% outsourcing = 5% outsourcing tax;

25% outsourcing = 12.5% outsourcing tax;

50% outsourcing = 25% outsourcing tax;

75% outsourcing = 37.5% outsourcing tax.

[1]http://www.maroon.uchicago.edu/viewpoints/articles/2004/10/27/child_poverty_a_mode.php
[2]http://www.en.wikipedia.org/wiki/measures_of_nation_income
[3]http://www.cia.gov/cia/publications/factbook/fields/2056.htm
[4]http://www.census.gov/population/socdemo/education/cps2003/tab01a-01.xls

Where in your calculations did you take into account the number of people who live below the poverty line? To cite an obvious example in which your system would not work: what would happen if every single American lived below the poverty line? Giving a welfare benefit to each person would then be impossible. Did you factor that in to your numbers?

I'm pretty well convinced the Fair Tax is the way to go, but I'm also certain it will never happen.

Personally, I'd prefer no income tax at all. We should do it like we used to: by having the federal government tax the states in proportion to their populations.

what would happen if every single American lived below the poverty line? Giving a welfare benefit to each person would then be impossible. Did you factor that in to your numbers?

How lilkely is it for every American to live below the poverty line?

Two quick issues from both sides:
The inheritance tax has an incentive built in to invest the money in estates (eg, houses) before death. It also double taxes savings, creating a disincentive to save income, causing inflation to go up a bit (imagine what would happen if Gates knew he was going to die and thus dumped his entire savings out into the market en masse).

Don't get me started over the outsourcing tax. That just breeds ineffiency and trade wars. Far better ways of handling that issue.

The flat tax is inherantly nonprogressive, which defeats the point of most income taxes, and takes a larger percentage of the income of needs-that-are-close-to-wants of a lower income person then a higher income person. Again, this may not be the goal of your plan, but it is generally the idea behind all income taxes.

I am really already sold on the fair tax...

29%?

Thats damned steep. Do you realize what that would do to wages? At that tax rate, my former job would have paid 6 dollars LESS an hour. And seeing as I need alot more than 13/hr to pay bills, rent and such.......

Don't know about you, but I don't know many who would take a paycut that massive.

Show me where the feds are entitled to nearly one-third of a persons paycheck anyways. The government wastes more tax dollars then they know what to do with, giving them MORE is just throwing it away.

And whats up with this year end benefit? Pay out a third of your income and they give you 5K at the end of the year? The government takes your money then gives part of it back? The only ones who benefit from that idea is the government.

I don't think so, Tim.

Inheritance tax vs. Estate tax. How are these not the same thing?

Oh, and you do realize that your actual tax rate is not 29%? Or are you forgetting that you are adding things like SS in on TOP of that overly high flat tax? Plus, pretty much every state has its' own taxes that aren't regulated by the Feds'. California for instance, has sales and income taxes. what do you think your huge tax increase would do to that states economy? It's already extremely expensive to live there. People would begin leaving in droves, looking for cheaper places to live.

How about instead. Cut 2/3rds of the current government. Flat tax of, say, 5 percent. Drop SS, phase out Welfare. Kill entitlement programs. Outlaw pork barrel spending and attaching anything to a bill or law that is not directly related to it.

Force the Feds to spend less, not give them more money.

29%?

Thats damned steep.

most people pay ss and medicare taxes which takes up about 6% of your paycheck anyway, 12% for people who are self employed, then you add in the lowest tax rate of 10% (not that most people pay the actual tax rate) and you are already up to 22% without sales tax, state tax, personal property tax, real estate tax, etc.

29%?

Thats damned steep. Do you realize what that would do to wages? At that tax rate, my former job would have paid 6 dollars LESS an hour. And seeing as I need alot more than 13/hr to pay bills, rent and such.......

Don't know about you, but I don't know many who would take a paycut that massive.

Show me where the feds are entitled to nearly one-third of a persons paycheck anyways. The government wastes more tax dollars then they know what to do with, giving them MORE is just throwing it away.

And whats up with this year end benefit? Pay out a third of your income and they give you 5K at the end of the year? The government takes your money then gives part of it back? The only ones who benefit from that idea is the government.

I don't think so, Tim.

Inheritance tax vs. Estate tax. How are these not the same thing?

Oh, and you do realize that your actual tax rate is not 29%? Or are you forgetting that you are adding things like SS in on TOP of that overly high flat tax? Plus, pretty much every state has its' own taxes that aren't regulated by the Feds'. California for instance, has sales and income taxes. what do you think your huge tax increase would do to that states economy? It's already extremely expensive to live there. People would begin leaving in droves, looking for cheaper places to live.

How about instead. Cut 2/3rds of the current government. Flat tax of, say, 5 percent. Drop SS, phase out Welfare. Kill entitlement programs. Outlaw pork barrel spending and attaching anything to a bill or law that is not directly related to it.

Force the Feds to spend less, not give them more money.
Hint: 1/2 of government spending is defense. 1/4 of the rest is social security, which technically isn't a tax. What 2/3rds is there to cut, pray tell?

And you haven't considered the states, either, just the Feds. What will fund state government (and yes, we do need it)?

Still he's talking nearly a third, BEFORE all the other taxes he suggests. And before all the taxes levied within the states. You don't think that will hurt lower-income families more?

And I stand by my earlier statement. The feds waste huge amounts of money. how is giving them MORE going to help anything?

Still he's talking nearly a third, BEFORE all the other taxes he suggests. And before all the taxes levied within the states. You don't think that will hurt lower-income families more?

And I stand by my earlier statement. The feds waste huge amounts of money. how is giving them MORE going to help anything?

This plan would actually cut revenue unless all current deductions are removed from the system. Then it would marginally increase revenue.

But, I despise the concept of flat taxation. If we must have taxes, than taxes should be proportionate to how much society has allowed one to prosper. So, progressive taxation all the way.

Hint: 1/2 of government spending is defense. 1/4 of the rest is social security, which technically isn't a tax. What 2/3rds is there to cut, pray tell?

You do realize that you've answered your own question?

I do support a flat income tax, but:

If you tax the poor 29% then give them 4000 dollars, why even tax them in the first place?
That only creates waste.

I say make 2 income taxes.
1 is 15% for the joe, the consumers.
2 is 30% for the millionaries and such.

Then add in a revenue generating tariff.
Then perhaps a moderate property tax or small sales tax for the states.
THen privatize education.

*snip*THen privatize education.

Why don't you just fucking shoot the poor in the head right now? Same effect. You're going to tax them at 15 percent, and then take away tax supported education?

That would create an endless poverty trap for anyone lower middle income and below.

You do realize that you've answered your own question?

That's a 1/4th. Can't do math dear?

How lilkely is it for every American to live below the poverty line?

I was giving an example. It is not necessary for every single American to live below the poverty line for that particular economic policy to not yield the desired results. If the majority of Americans earn under $40,000 dollars, for example, there may be a deficit.

I was giving an example. It is not necessary for every single American to live below the poverty line for that particular economic policy to not yield the desired results. If the majority of Americans earn under $40,000 dollars, for example, there may be a deficit.

Which they do.

It would actually be a tax cut for me, because I mooch my 'rents health insurance, so I and my income get counted on their tax forms. So instead of getting all of my money filched away from me, I'd get just a tiny bit more.

Why don't you just fucking shoot the poor in the head right now? Same effect. You're going to tax them at 15 percent, and then take away tax supported education?

That would create an endless poverty trap for anyone lower middle income and below.

Only way for capitalism to work is if everyone is educated. Stupid people don't produce anywhere near as much, and are therefore less valuable. Any entrepeneuer wants smart employees, who can have excellent productivity. At the same time, an entrepeneuer also wants his consumers to have as much cash as possible to spend, and if they're educated, then they'll have more.

I think that education is a sufficiently social good to be legitimately provided for by the state.

Only way for capitalism to work is if everyone is educated. Stupid people don't produce anywhere near as much, and are therefore less valuable. Any entrepeneuer wants smart employees, who can have excellent productivity. At the same time, an entrepeneuer also wants his consumers to have as much cash as possible to spend, and if they're educated, then they'll have more.

I think that education is a sufficiently social good to be legitimately provided for by the state.

I wasn't attacking you. I was attacking that air-head.

I wasn't attacking you. I was attacking that air-head.

I was coming in on your side. I was attempting to support your argument, from a capitalist point of view.

Damnable internets causin' miscommunication.

I was coming in on your side. I was attempting to support your argument, from a capitalist point of view.

Damnable internets causin' miscommunication.

Sorry, didn't seem that way. Anyway, I don't think he's on anymore, so its a moot point.

Sorry, didn't seem that way. Anyway, I don't think he's on anymore, so its a moot point.

Aye, aye.

Here's my problem (linky (http://www.wordwiz72.com/taxpix.JPG)) with any sort of flat tax. The rich get richer, the poor get poorer, and the middle class slowly vanishes.

Why don't you just fucking shoot the poor in the head right now? Same effect. You're going to tax them at 15 percent, and then take away tax supported education?

That would create an endless poverty trap for anyone lower middle income and below.
My view is if there are more taxes then you should get more from the government. After all, you are giving them so much money, where is it going?


(unless you are rich, because then the money goes towards helping the poor)

You tax the poor, then give them nothing? Why tax them, for profit?

You tax the poor, then give them nothing? Why tax them, for profit?

Well, for the profit of the elite in government and their cronies...

That's a 1/4th. Can't do math dear?

Don't be rude.

All of welfare for a start. Thats 25% Cut defense spending by half. Yes, that would mean pulling out of all the bullshit firefights the last few Administrations have involved the military in. There's another 25 for you. Cut enough of the massive bureaucratic bullshit that comprises so much of the USGov to trim another 16%.

25+25+16=66%

I can do math just fine. Dear.

Hint: 1/2 of government spending is defense. 1/4 of the rest is social security, which technically isn't a tax. What 2/3rds is there to cut, pray tell?

Um, the govenrment spends nowhere near 50% of the budget on defense. It's more like 18%!

The DOD has a budget of 420 Billion. That's half of the DISCRETIONARY budget of 840 Billion.

This doesn't count the MANDATORY budget: $1,410 Billion, which includes 540 on Social Security, 340 on Medicare, 199 on Medicaid, and 331 on "Other".

That's right, the US Government spends a TRILLION dollars more on "entitlements" than on defense.

You can find this data on table S-10 of the US Budget, 2006.

Don't be rude.

All of welfare for a start. Thats 25% Cut defense spending by half. Yes, that would mean pulling out of all the bullshit firefights the last few Administrations have involved the military in. There's another 25 for you. Cut enough of the massive bureaucratic bullshit that comprises so much of the USGov to trim another 16%.

25+25+16=66%

I can do math just fine. Dear.

Um, actually, no. See my above post to CSW... You're not even computing the entire budget!

Where in your calculations did you take into account the number of people who live below the poverty line? To cite an obvious example in which your system would not work: what would happen if every single American lived below the poverty line? Giving a welfare benefit to each person would then be impossible. Did you factor that in to your numbers?

I haven't forgotten about those who live below the poverty line. Their income will be taxed the same as everyone else (29%), and at the end of the year, they'll receive their welfare payment.

Your example is unlikely to ever happen. Societies are never one-class.

I'm pretty well convinced the Fair Tax is the way to go, but I'm also certain it will never happen.

An easy way to refute the Fair Tax is by giving the example of the upper class: they'll simply import goods. Imagine the upper class using that loophole to avoid paying taxes, there would be no revenue from them, and that would amount to billions upon billions of lost dollars.

Two quick issues from both sides:
The inheritance tax has an incentive built in to invest the money in estates (eg, houses) before death. It also double taxes savings, creating a disincentive to save income, causing inflation to go up a bit (imagine what would happen if Gates knew he was going to die and thus dumped his entire savings out into the market en masse).

Don't get me started over the outsourcing tax. That just breeds ineffiency and trade wars. Far better ways of handling that issue.

The flat tax is inherantly nonprogressive, which defeats the point of most income taxes, and takes a larger percentage of the income of needs-that-are-close-to-wants of a lower income person then a higher income person. Again, this may not be the goal of your plan, but it is generally the idea behind all income taxes.

I see the incentive to invest as being helpful towards the economy by putting money into the economy, QED.

Inefficiency how? It would be great if you actually explained what you meant instead of assuming people can read your thoughts.

Okay, as for flat tax, it would be helpful if you had actually read my proposal instead of skimming it and posting about something you obviously have no clue about. There's a welfare payment equal to the poverty line payable to all citizens who pay their income tax. This welfare payment would, for the majority of Americans, more than pay for their tax expenditures. So in reality, most people would actually keep more money than they do in the current system.

29%?

Thats damned steep. Do you realize what that would do to wages? At that tax rate, my former job would have paid 6 dollars LESS an hour. And seeing as I need alot more than 13/hr to pay bills, rent and such.......

*Hits self* It would also be helpful if you had read the part about welfare payment. Look at the examples, and fill out the formula I provided if you want to see how it would work. Otherwise, why post if you're ignorant of the content?

Don't know about you, but I don't know many who would take a paycut that massive.

Show me where the feds are entitled to nearly one-third of a persons paycheck anyways. The government wastes more tax dollars then they know what to do with, giving them MORE is just throwing it away.

29% would create a surplus. I've calculated the bare minimum to support the system, and it would be approximately 22.5% if you prefer that number. In any case, this whole proposal is negotiable. I'm trying to appease as many as I can.

And whats up with this year end benefit? Pay out a third of your income and they give you 5K at the end of the year? The government takes your money then gives part of it back? The only ones who benefit from that idea is the government.

The government wouldn't benefit. The average citizen would.

I don't think so, Tim.

Inheritance tax vs. Estate tax. How are these not the same thing?

Oh, and you do realize that your actual tax rate is not 29%? Or are you forgetting that you are adding things like SS in on TOP of that overly high flat tax? Plus, pretty much every state has its' own taxes that aren't regulated by the Feds'. California for instance, has sales and income taxes. what do you think your huge tax increase would do to that states economy? It's already extremely expensive to live there. People would begin leaving in droves, looking for cheaper places to live.

How about instead. Cut 2/3rds of the current government. Flat tax of, say, 5 percent. Drop SS, phase out Welfare. Kill entitlement programs. Outlaw pork barrel spending and attaching anything to a bill or law that is not directly related to it.

Force the Feds to spend less, not give them more money.

Feel free to actually do the math. You'll notice it's not that simple to say stupid things such as "5 percent". It's easy to pull numbers out of your hat, but it's not easy to actually come up with a workable system like the one I've proposed.

Also, note that if my system is implemented, there would be no need for Social Security. Welfare payments (subject to change to keep it equal to the poverty line) would be payable as retirement benefits.

And you haven't considered the states, either, just the Feds. What will fund state government (and yes, we do need it)?

With the surplus my system would create (to the tune of hundreds of billions), it would easily pay for state government.

With the surplus my system would create (to the tune of hundreds of billions), it would easily pay for state government.

The federal government does not pay for the state government, The state government is responsible for funding itself. The exception to this is highways and other specified government projects. The big problem with this is- whenever the government has paid money to a state, they have used it to gain leverage upon that states sovereignty. If your plan were to work that the federal government is responsible for a states total finances, the idea of any local government (and thus more responsive government) is completely dismissed. I am not in favor of your idea for this reason and others.

The federal government does not pay for the state government, The state government is responsible for funding itself. The exception to this is highways and other specified government projects. The big problem with this is- whenever the government has paid money to a state, they have used it to gain leverage upon that states sovereignty. If your plan were to work that the federal government is responsible for a states total finances, the idea of any local government (and thus more responsive government) is completely dismissed. I am not in favor of your idea for this reason and others.

This is also not entirely accurate: the Federal Government spends more on some states than others.

http://www.taxfoundation.org/blog/topic/9.html

For example, my state (Connecticut) gives more to the Feds than we get back. :mad:

Connecticut taxpayers receive less federal funding per dollar of federal taxes paid compared to the average state. Per dollar of Federal tax collected in 2004, Connecticut citizens received approximately $0.66 in the way of federal spending. This ranks the state 2nd lowest nationally and represents a slight fall from 1992 when Connecticut received $0.68 per dollar of taxes in federal spending (also 2nd lowest).

Um, actually, no. See my above post to CSW... You're not even computing the entire budget!

I am dammit! CSW claimed total budget percentages as being;
50%-Defense.
25%-Welfare
25%- Everything Else.
= 100% of the budget.

Cut the whole fucking United States Federal Governments budget by 66.6%! The whole goddamned thing. Defense, Welfare, Social Security, and SO on. All the bloody alphabet soup agencies that they keep creating to spend even more money.

Let the fucking Feds learn to actually LIVE with a goddamned budget! And don't anyone try to claim they do. Go look up just how many times in the past few years Congress has raised the budget cap so they could spend more. They live within a budget until they decide they don't fell like it.

Was that MATH hard to figure out!?

And has anyone considered the fact that for someone living farther down the wage scale, 29% removed from their salary is going to hurt alot more than a maybe 5K at tax time is going to help. No one in their right mind bases their household spending on MAYBE getting a check from the taxman at the end of the year.

Yes, that 4700 dollars will help the government alot. They take that, put it in accounts that accrue interest. You think that they will hand over that money to you? Plus, you are gonna get taxed on your income? Which means they are gonna tax that benefit to.

Okay, I'll give ya this much, I pulled the 5 out of thin air. The number I usually hear floated around is double that. 10% for those of you who keep impugning(sp?) my mathmatical skills. I'm an artist dammit, not a mathmatician!

One more item before I quit ranting. A flat tax of 29% would RAISE the tax rates on a large portion of the country. People who are having to spend what they have on the basics, like housing, food etc. Don't you think that is imposing a burden on people who already have it rough enough?

Rant/diatribe over.

Here's an augmented flat tax that I submitted to the Human Rights Party as an ammendment. I'd be interested in hearing other people's opinions on it. The numbers used are for simplicity, not as an accurate representation of what the tax rate should be.

4th Ammendment: The HRP will institute a flat tax on personal income and corporate profits based on a starting point for taxation above 0 dollars for personal taxes and at 0 for corporate taxes. Welfare shall be expressed as a function of the tax rate and the starting point of taxation.

Commentary: Let's say the tax rate is 20% and starts getting counted at 20,000. Here's how the taxes would work on various incomes: (Income on the left, taxes paid on the right)

0 = -4000
10000 = -2000
20000 = 0
30000 = 2000
50000 = 6000
100000 = 18000
200000 = 38000
1000000 = 198000

Basically, the system is mathematically unbreakable. Depressing your income by putting it in a fund of some sort will not change the amount it is taxed.

American Federalism

Government: Give us money.
People: YAH OK!

European Socialism

Government: Give us money.
People: No, you should really be giving us money instead.
Government: We will, but only if you first give us money.
People: YAH OK!

Soviet Socialism

People: Give us money.
Government: Sorry, all out. Can I interest you in a bullet to the brain and a cheap burial instead?
People: YAH OK!

Chinese Socialism

Government: Give us some [censored] money.
People: [censored]

The federal government does not pay for the state government, The state government is responsible for funding itself. The exception to this is highways and other specified government projects. The big problem with this is- whenever the government has paid money to a state, they have used it to gain leverage upon that states sovereignty. If your plan were to work that the federal government is responsible for a states total finances, the idea of any local government (and thus more responsive government) is completely dismissed. I am not in favor of your idea for this reason and others.

Actually, a large amount of federal money goes to the states every year, usually earmarked for things like Aid to Single-Parent Families, and Medicare.
Since REagan, much of it has gone in "block grants" with relatively fewer strings attached than had previously been the case.

Here's an augmented flat tax that I submitted to the Human Rights Party as an ammendment. I'd be interested in hearing other people's opinions on it. The numbers used are for simplicity, not as an accurate representation of what the tax rate should be.

4th Ammendment: The HRP will institute a flat tax on personal income and corporate profits based on a starting point for taxation above 0 dollars for personal taxes and at 0 for corporate taxes. Welfare shall be expressed as a function of the tax rate and the starting point of taxation.

Commentary: Let's say the tax rate is 20% and starts getting counted at 20,000. Here's how the taxes would work on various incomes: (Income on the left, taxes paid on the left)

0 = -4000
10000 = -2000
20000 = 0
30000 = 2000
50000 = 6000
100000 = 18000
200000 = 38000
1000000 = 198000

Basically, the system is mathematically unbreakable. Depressing your income by putting it in a fund of some sort will not change the amount it is taxed.So then you're saying that you would tax savings at the same rate as anything else?
(Incidentally, the tax paid is on the right.)

I am dammit! CSW claimed total budget percentages as being;
50%-Defense.
25%-Welfare
25%- Everything Else.
= 100% of the budget.

Cut the whole fucking United States Federal Governments budget by 66.6%! The whole goddamned thing. Defense, Welfare, Social Security, and SO on. All the bloody alphabet soup agencies that they keep creating to spend even more money.

...Ok, got it. (CSW was wrong, of course.)

Why? Why would you possibly want to plunge the world into a planetary depression and un-employ millions of Americans to boot? Never mind making us militarily weak and killing the feeble, old, or sick. Oh, and letting our highways and infrastructure deteriorate from the current C- to a solid F?

Let the fucking Feds learn to actually LIVE with a goddamned budget! And don't anyone try to claim they do. Go look up just how many times in the past few years Congress has raised the budget cap so they could spend more. They live within a budget until they decide they don't fell like it.

True, but 66% *way* is too severe. Even 5% a year for two or three years back to back would be a noose around the economy's neck.

And has anyone considered the fact that for someone living farther down the wage scale, 29% removed from their salary is going to hurt alot more than a maybe 5K at tax time is going to help. No one in their right mind bases their household spending on MAYBE getting a check from the taxman at the end of the year.

This is absolutely correct, and why Jerry Brown (D- California) in his 1992 Presidential Run favored a 13% flat tax. I heard him speak at the University of Connecticut, and it made a lot of sense.


<snip>
One more item before I quit ranting. A flat tax of 29% would RAISE the tax rates on a large portion of the country. People who are having to spend what they have on the basics, like housing, food etc. Don't you think that is imposing a burden on people who already have it rough enough?
Rant/diatribe over.

This is also true. 29%+ only effect something like the top 5% or 8% of all taxpayers right now. I'm currently paying in the 30s. :(

So then you're saying that you would tax savings at the same rate as anything else?
(Incidentally, the tax paid is on the right.)
I fixed that minor typo.

What is the current system of taxation on savings?

I was giving an example. It is not necessary for every single American to live below the poverty line for that particular economic policy to not yield the desired results. If the majority of Americans earn under $40,000 dollars, for example, there may be a deficit.

According to the census bureau (http://quickfacts.census.gov/qfd/states/00000.html):
per capita money income, in 1999 was $21,587;
median household income, in 2003 was $43,318;
persons per household, in 2000 were 2.59.
Notice also that Average family income dropped 2.3% (http://www.usatoday.com/money/economy/income/2006-02-23-fed-incomes_x.htm).
So I'd definitively say that the majority of U.S. Americans is earning well under $40,000.
Usually the poverty treshold is given by a percentage of the average income (at least here in Czech Republic). So it is matematically impossible for the whole population of a state to be below the poverty line.
Thus your assumptions are faulty.

What is the current system of taxation on savings?You just list your interest on a line the same way you would income, but since incomes aren't taxed in the same way, savings wouldn't be taxed in the same way for everybody across the board.

per capita money income, in 1999 was $21,587;
median household income, in 2003 was $43,318;
persons per household, in 2000 were 2.59.

So I'd definitively say that the majority of U.S. Americans is earning well under $40,000.


Not quite; you have to remember that those numbers include all people 15 years or older. Currently, only 66.2% of people ages 16-64 are working, or about 56% of the total over-15 US population; if you correct the numbers to account for this discrepancy, you get about $30,923 in per-capita money income for participants in the labor force.

However, not all money comes from that one source; that $30,923 is only part of the income the average American earns in one year. PCMI does not include things like Social Security or Medicare payments and the other measure does not include capital gains, interest payments, and similar ventures. In conclusion, you have to look at the household income to get an idea of what the average family in the US makes.

You just list your interest on a line the same way you would income, but since incomes aren't taxed in the same way, savings wouldn't be taxed in the same way for everybody across the board.
But how is that number factored into the taxes you pay?

You just list your interest on a line the same way you would income, but since incomes aren't taxed in the same way, savings wouldn't be taxed in the same way for everybody across the board.

At least in theory, savings should not be taxed as it's already post tax'd money, but I digress... :(

Um, the govenrment spends nowhere near 50% of the budget on defense. It's more like 18%!

The DOD has a budget of 420 Billion. That's half of the DISCRETIONARY budget of 840 Billion.

This doesn't count the MANDATORY budget: $1,410 Billion, which includes 540 on Social Security, 340 on Medicare, 199 on Medicaid, and 331 on "Other".

That's right, the US Government spends a TRILLION dollars more on "entitlements" than on defense.

You can find this data on table S-10 of the US Budget, 2006.

Social security technically isn't an expense per se, drawn from the budget, as it is funded by an entirely separate tax and is more a gigantic pension fund. And the budget for the DoD is around 600 billion (500 billion discretionary and 100 billion in supplimental, iraq war mostly). Medicare and 'caid are fair. Still roughly half

I see the incentive to invest as being helpful towards the economy by putting money into the economy, QED.

It doesn't create an incentive to invest, because stocks and bonds are taxed as liquid income. It creates an incentive to try and pull a fast one and tie up liquidity in houses.

Inefficiency how? It would be great if you actually explained what you meant instead of assuming people can read your thoughts.

Hawley Smoot tariff, anyone? If you seriously don't know how trying to throw up barriers to trade can quickly lead to a price war (and lead to inefficiencies), you need to take economics 101. Likewise, if you force consumers to pay more for a good then they otherwise could without the price regulation, you are inherantly creating some level of inefficiency in the market.

Okay, as for flat tax, it would be helpful if you had actually read my proposal instead of skimming it and posting about something you obviously have no clue about. There's a welfare payment equal to the poverty line payable to all citizens who pay their income tax. This welfare payment would, for the majority of Americans, more than pay for their tax expenditures. So in reality, most people would actually keep more money than they do in the current system.


I did read it. Look at it this way. If everyone has a certain amount of money they are obliged on necessary goods, the richer will have much much much more to spend on unnecessary goods as a percentage of total income then the poorer. This isn't necessarily a good or a bad thing, but is regressive, which may or may not be your goal.

To Duntscruwithus:
If you wish to destroy the US army, which seems to be your goal, then yes, a 2/3rds cut is possible. The result just won't be pretty.

Social security technically isn't an expense per se, drawn from the budget, as it is funded by an entirely separate tax and is more a gigantic pension fund. And the budget for the DoD is around 600 billion (500 billion discretionary and 100 billion in supplimental, iraq war mostly). Medicare and 'caid are fair. Still roughly half

Er, we're talking about federal spending here. Where it takes the money in is kind of moot: income tax, gas tax, SS tax, whatever. But even if you take out SS, military spending is still below half -- much closer to 33% or so.
(I won't even go into how all DoD funding isn't defense spending - Army Corp of Engineer projects for example.)

Where does company tax come into the equation?
Would there be company tax? And would it be at the same flat 29%?

You seem to be operating under some very flawed premises.

First off – the poverty line is not $4k in the US. According to the US Department of Health and Human services it is currently $9,800 for an individual according to the 2006 Federal Poverty Guide ($12,250 for Alaska and $11,270 for Hawaii). http://aspe.hhs.gov/poverty/06poverty.shtml

The US Census puts it slightly higher at $9,973

There is a cost to collecting taxes – people have to be paid to process taxes, citizenry have to file taxes and spend a lot of time filing paperwork, etc. This is all very expensive. Taxing people who make a negligible income is ludicrous – you spend more money processing their paperwork then you gain in taxes.

Inheritance taxes are simply a bad idea - especially if they only tax bank accounts. Hardly any money is actually held in bank accounts. If you have any substantial amount of money, and you want it to remain fairly liquid, it is generally invested in either stocks or bonds. Even if you tax these things, people will simply shift their money into more tangible assets (the exception would be estates with negligible assets). There are hardly any accounts of any substantial size, so the tax would probably end up costing more than the revenue it generates.

Additionally, taxing outsourcing? Outsourcing is a popular target for politicians trying to point blame for any hardship among workers, but it has provided a great benefit to the US economy. Outsourcing allows companies to lower production costs and thus lower prices – which helps a lot more people than those who loose their jobs through outsourcing. Lowering the cost of living and providing a better return for investors has a far greater effect than a handful of workers having to find other jobs. Economic protectionism is a great way to cripple an economy – the effect of shutting down multinationals would be three-fold.

First, multinationals would pull out of the US and be headquartered elsewhere. The taxes they pay will be lost. The jobs they provide will be lost.

Second, the cost of goods would go way up. Higher prices, due to having to manufacture in high cost areas or paying what amounts to an import tariff, would greatly raise the cost of living for everyone in the country.

Thirdly, investment in US companies would fall rapidly (goodbye current account deficit, hello falling currency and stagflation). Few investors would choose to invest in companies which are so badly hobbled as to not be able to operate outside of US borders without severe economic penalties.




I would like to see the first $20k tax exempt and a flat tax on the rest. Such a simple system would be very easy to process. It would be fair since people making low wages would not pay anything at all. It would also be effectively a progressive tax, as the more money you make; the larger portion of that money gets taxed, but the tax rate would be the same for everyone. Simplifying the tax code would generate massive savings simply due to the amount of time spent trying to figure out taxes, filling out forms, arguing with the IRS over potential problems, etc. – both the compliance and administrative costs would be drastically reduced.

*Person A makes $4720.50 and pays a net total of $1368.95 in flat income taxes, at the rate of 29%. At the end of the year, Person A receives a benefit payment of $4720.50, making their total income at the end of the year, after taxes, $8072.05

So, you take 29% from them a month, but only pay them back in the last month of the year? So they have to live 29% below the poverty line for 11 months of the year then they get a nice check for Christmas?

There would also be an annual "social benefit" payment, equal to the poverty line ($4720.50 according to [1]), to be given to every working 18-64 year old, high school graduate citizen. The benefit payment itself is to assure citizens that no productive worker will fall below the poverty line, unless they do so by their own actions.

How about just raising the tax threshold to $16,277.59 and getting rid of the whole fiasco and bureaucracy of taxpayers paying money to the government only to have it paid back to them?

But how is that number factored into the taxes you pay?In the same way as income; if you made $100 in savings, it would be the same as making $100 more in income.

At least in theory, savings should not be taxed as it's already post tax'd money, but I digress... :(Perhaps not, but if you don't tax savings in a flat tax, you end up with it being a regressive tax, as the people with more money will save more, but those with less money will be unable to.

Perhaps not, but if you don't tax savings in a flat tax, you end up with it being a regressive tax, as the people with more money will save more, but those with less money will be unable to.
I don't see how not taxing rich people's money twice makes the system regressive...

I can see why you think it would be unfair, but mathematically it's not regressive.

The system I proposed is actually progressive, which happens as a result of starting to count income at a point above 0. If the point were set below zero, the system would be regressive. Pure flat tax, which is not what I've proposed, sets the count right at zero.

Perhaps not, but if you don't tax savings in a flat tax, you end up with it being a regressive tax, as the people with more money will save more, but those with less money will be unable to.

Er, no. You can not tax savings at all, and it HELPS those whom can afford to save less. That those whom can save more do so makes no difference.

For example, a 13% income tax (no inheretance or flat tax) raises all boats equally, regardless of the size of the boat.

I don't see how not taxing rich people's money twice makes the system regressive...

I can see why you think it would be unfair, but mathematically it's not regressive.

The system I proposed is actually progressive, which happens as a result of starting to count income at a point above 0. If the point were set below zero, the system would be regressive. Pure flat tax, which is not what I've proposed, sets the count right at zero.It's regressive because interest from savings is a form of income, which isn't being taxed, if interest from savings isn't taxed.

Er, no. You can not tax savings at all, and it HELPS those whom can afford to save less. That those whom can save more do so makes no difference.

For example, a 13% income tax (no inheretance or flat tax) raises all boats equally, regardless of the size of the boat.That's assuming that the tax is low enough, or that a progressive tax couldn't be lower.

It's regressive because interest from savings is a form of income, which isn't being taxed, if interest from savings isn't taxed.
Makes sense to me. Is there another logical step that you've just tricked me into accepting as well?

Makes sense to me. Is there another logical step that you've just tricked me into accepting as well?Yes. You're now a communist. :) Just kidding, I don't think there's any other logical step. That was awfully easy getting you to agree, I was going to have to bring up an analogy and everything that I don't get to bring up now. :( (Unless Markreich still disagrees...<is hopeful again>)

Perhaps not, but if you don't tax savings in a flat tax, you end up with it being a regressive tax, as the people with more money will save more, but those with less money will be unable to.

And that's a problem why? The income was ALREADY taxed. Unless you want to set up a state where savings is useless and one has cradle-to-grave healthcare, pensions, etc it's a bad idea.

Look at France & Germany. In the next 15 years, you're going to see major changes either in their economies or benefits. They simply will not be able to afford all of their old people.

EDIT: just realized that this is the 2nd reply to this post, but I'll leave it as I took a different tack.

It's regressive because interest from savings is a form of income, which isn't being taxed, if interest from savings isn't taxed.

That's assuming that the tax is low enough, or that a progressive tax couldn't be lower.

13% is very low, and as long as it is equally applied (no deductions for children, houses, etc), as fair as one can make it. Sure, you'll still have rich and poor. But you'll always have that as long as there IS money.

And that's a problem why? The income was ALREADY taxed. Unless you want to set up a state where savings is useless and one has cradle-to-grave healthcare, pensions, etc it's a bad idea. I don't object to either the concept of saving or the concept of a state with cradle-to-grave healthcare, pensions, etc.
With that said, it is true that the initial money was already taxed. What if someone took one of those dollars that had already been taxed and bought a lottery ticket with it? If they won, would you object to their winnings being taxed, also?
The lottery winnings is no different that the interest from a savings account, both are income, but one investment is riskier than the other.

13% is very low, and as long as it is equally applied (no deductions for children, houses, etc), as fair as one can make it. Sure, you'll still have rich and poor. But you'll always have that as long as there IS money.If you're going to have a flat tax at all, it should be along the lines of what Ragbralbur posted earlier. 13% is incredibly punitive to someone making $10,000 a year.

I don't object to either the concept of saving or the concept of a state with cradle-to-grave healthcare, pensions, etc.
With that said, it is true that the initial money was already taxed. What if someone took one of those dollars that had already been taxed and bought a lottery ticket with it? If they won, would you object to their winnings being taxed, also?
The lottery winnings is no different that the interest from a savings account, both are income, but one investment is riskier than the other.

This is exactly so, which is why I'm against this double taxation.
Now, I can see a levy on houses, cars, bought goods (etc) to pay for police, infrastructure, et al. But if there is an income tax, it is my opinion that taxing anything made OFF of remaining income is wrong.

Consider:
If I left the money under my bed, it earns nothing and I pay nothing.
If I put it into a bank account, I earn some paltry interest and have to pay a paltry tax.
If I put it into the next Amazon.Com, I make oodles of cash, yet have to pay oodles of taxes.
This is inherently regressive: the taxes penalize those that seek to improve their economic lot!


If you're going to have a flat tax at all, it should be along the lines of what Ragbralbur posted earlier. 13% is incredibly punitive to someone making $10,000 a year.

Why? It is not at all punitive if everyone is being taxed exactly the same!
Are you alluding to cost of living? Ok they... is the 10K person still living at home with their parents? Do they live in Manhattan or Memphis?

It's regressive because interest from savings is a form of income, which isn't being taxed, if interest from savings isn't taxed.

Interest earned off of a savings account is classified as income. If you say ‘tax savings’ what you are implying is a tax on the money sitting in a bank account, not the interest earned off of it. This sort of tax would simply discourage savings (if you don’t spend it all, the government will just take it) and that would cripple an economy.

There are two simple reasons why you need to have an exclusion of people making an income that puts them below the poverty level. These reasons are that they cannot afford to pay any kind of tax as they simply lack the spare funds (you cannot get blood from a stone) and more importantly to the IRS, the taxes collected on them are so small they do not even pay the collection fee, and thus actually cost the government money to collect it.

First off, if you are taxed for additional income from savings and investment, you are not being double taxed. Additional income is income and should be taxed, whether it comes from labor, investment, saving, whatever.

The issue of double taxation occurs when a particular income is taxed twice, in the matter of investment, it occurs as a taxation on corporate profits (which should be considered the income of the owners) and a taxation on dividend income (which is representative of that same income). The problem does not arise because income from investment is taxed, it arises because income from investment is taxed twice.



Consider:
If I left the money under my bed, it earns nothing and I pay nothing.
If I put it into a bank account, I earn some paltry interest and have to pay a paltry tax.
If I put it into the next Amazon.Com, I make oodles of cash, yet have to pay oodles of taxes.
This is inherently regressive: the taxes penalize those that seek to improve their economic lot!

If I sleep in my bed, I earn nothing and I pay nothing.
If I get a part time job, I earn little and I pay little.
If I get a full time job, I earn a lot and pay a lot.
This is inherently regressive: the taxes penalize those that seek to improve their economic lot!

Unless you seek to argue that no taxes should be levied whatsoever (a principled idea, but not practical), absurdum will kick your ass. It doesn't appear that you wish to abolish all taxation, as you have not approached this argument from a anti-tax standpoint.

Why? It is not at all punitive if everyone is being taxed exactly the same!

Yes it is, the marginal utility of a dollar and government protection of exchange markets makes it so.

First off, if you are taxed for additional income from savings and investment, you are not being double taxed. Additional income is income and should be taxed, whether it comes from labor, investment, saving, whatever.

By your POV. JF wants to tax savings *and* interest. I don't think either should be taxed.

The issue of double taxation occurs when a particular income is taxed twice, in the matter of investment, it occurs as a taxation on corporate profits (which should be considered the income of the owners) and a taxation on dividend income (which is representative of that same income). The problem does not arise because income from investment is taxed, it arises because income from investment is taxed twice.

If I sleep in my bed, I earn nothing and I pay nothing.
If I get a part time job, I earn little and I pay little.
If I get a full time job, I earn a lot and pay a lot.
This is inherently regressive: the taxes penalize those that seek to improve their economic lot!

Exactly right. To be fair and have an income tax, we need a flat tax.

Unless you seek to argue that no taxes should be levied whatsoever (a principled idea, but not practical), absurdum will kick your ass. It doesn't appear that you wish to abolish all taxation, as you have not approached this argument from a anti-tax standpoint.

Yes it is, the marginal utility of a dollar and government protection of exchange markets makes it so.

Not quite: fair taxation is the same percentage of all income earned in my book. 13% of 10,000 is no more or less damaging than 13% of 100,000.
(13% is arbitrary, I like it beacuse it's about a third what I'm currently paying.)

And that's a problem why? The income was ALREADY taxed. Unless you want to set up a state where savings is useless and one has cradle-to-grave healthcare, pensions, etc it's a bad idea.

Look at France & Germany. In the next 15 years, you're going to see major changes either in their economies or benefits. They simply will not be able to afford all of their old people.
Plenty of things in the system are taxed twice. Let me give you an example. You make $1000, and $100 is taxed away. Of that $900, you use $100 to buy your neighbour's lawnmower and declare it (your neighbour would see another $10 taxed away). From your money, your neighbour uses $10 to rent the lawnmower he sold to you for a weekend, which you declare, and another dollar is taxed away. Your $1000 was taxed for $111 in this case, some of which was taxed from you twice.

Rallying against double taxation is good rhetoric, but it's not very realistic.

Plenty of things in the system are taxed twice. Let me give you an example. You make $1000, and $100 is taxed away. Of that $900, you use $100 to buy your neighbour's lawnmower and declare it (your neighbour would see another $10 taxed away). From your money, your neighbour uses $10 to rent the lawnmower he sold to you for a weekend, which you declare, and another dollar is taxed away. Your $1000 was taxed for $111 in this case, some of which was taxed from you twice.

Rallying against double taxation is good rhetoric, but it's not very realistic.

Why would one declare buying a neighbor's lawnmower? :confused:

Consider:
If I left the money under my bed, it earns nothing and I pay nothing.
If I put it into a bank account, I earn some paltry interest and have to pay a paltry tax.
If I put it into the next Amazon.Com, I make oodles of cash, yet have to pay oodles of taxes.
This is inherently regressive: the taxes penalize those that seek to improve their economic lot!

I'd just like to chime in that you seem to be getting the concept of regressive/flat/progressive tax wrong. The word regressive tax doesn't just mean "unfair" tax, it has a widely accepted meaning, the same way progressive tax isn't "fair" tax. The meanings have been there a long time and there's really no point in twisting them.

regressive tax = the tax % of lower-income people is higher than the higher income people.
proportional tax = tax % is same for everyone
progressive tax = tax % of higher-income people is higher that the lower income people

In your example tax wouln't be progressive or regressive.

Note that a tax doesn't have to mention a persons income to be either progressive or regressive, for example tax on dividens is highly progressive and sales tax is highly regressive, even if they treat money from high-income and low income people the exact same way, just because high-income people use more of they money to invest, and thus earn in dividens, and low-income people use more to buy stuff that can be placed under a sales tax.

Also note that regressive taxation isn't always bad, for example tax on tobacco and alcohol is one of the most regressive taxes in existance, but has undeniably good effects on national healthcare.

Also note that the flat tax that is often presented isn't usually really proportional but has returns like the one proposed by OP or a high starting percentage which means it's actually progressive.

And as a final note, the US tax system is broken and needs to be fixed, both because it uses a ridiculous amount of money for the act of taxation (and avoiding it) and because currently the progressivity built into the law doesn't really work, as the richest people can move their income off the income tax causing them to actually pay a lower percentage than the middle class. Currently the tax system hurts upper middle class most, and considering they are olso the most productive per income earned it doesn't make sense. How should it be changed? I dont really know.

...But just because we all like giving our 2c here's a suggestion:

Tax all petroleum-based motor vehicle fuels by 300% (oh yes, 75% of price of final product would be tax). Before going all omg gawk, note that it's in use in large areas of europe and works well in, for instance, Finland, where distances are on average larger than in the USA. It would help the environment, make the adoptation of alternative fuels a lot more productive, removing the depencency US has on foreign oil and as a nice bonus help the US current account balance as oil is some 1/3 of it. Oh, and it would make truckloads of money, at a low cost as sales tax is fundamentally very cheap to implement compared to income tax. Of cource, moving to it in one year would be disastrous, so a making it a tax that would grow by 5% every year would seem appropriate.

Make a nationwide flat tax for all non-labour non-benefit income, just because capital incomes are way too easy to move around.

Get all the rest of the needed tax from states by taxing them proportional to population. That way people who want different kind of taxation can vote it in and see the effects themselves.

You split my post up all crazy.

By your POV. JF wants to tax savings *and* interest. I don't think either should be taxed.

It appears that JB wishes for the income of savings interest to be taxed, not the actual money being saved. If I am wrong, one of you please direct me to the post that says otherwise.

What are your reasons for not wishing for interest income to be taxed?

Exactly right. To be fair and have an income tax, we need a flat tax.

Not quite: fair taxation is the same percentage of all income earned in my book. 13% of 10,000 is no more or less damaging than 13% of 100,000.
(13% is arbitrary, I like it beacuse it's about a third what I'm currently paying.)


There is an economic principle that is central to estimates of value. It is called "diminishing marginal utility." It is common sense at its core: the more of a particular item an individual has, the less the individual will value an additional unit. The inverse is also true: the less of a particular item an individual has, the more the individual will value any lost or spent unit.

To begin with all of our economic valuations take place on the margins.

When you say "13% of 10,000 is no more or less damaging than 13% of 100,000" you make this statement based on the total utility of a dollar. When using the total utility of a dollar, the value of 87 cents at a $10,000 level equals 87 cents at a $100,000 level. It buys the same thing.

However, as I said, economic valuations take place on the margins. To explain I will borrow from Eugen von Bohm Bawerk. He sets this scenario:

A colonial farmer, whose log but stands by itself in the primeval forest, far away from the busy haunts of men, has just harvested five sacks of corn. These must serve him till the next autumn. Being a thrifty soul he lays his plans for the employment of these sacks over the year. One sack he absolutely requires for the sustenance of his life till the next harvest. A second he requires to supplement this bare living to the extent of keeping himself hale and vigorous. More corn than this, in the shape of bread and farinaceous food generally, he has no desire for. On the other hand, it would be very desirable to have some animal food, and he sets aside, therefore, a third sack to feed poultry. A fourth sack he destines for the making of coarse spirits. Suppose, now, that his various personal wants have been fully provided for by this apportionment of the four sacks, and that he cannot think of anything better to do with the fifth sack than feed a number of parrots, whose antics amuse him. Naturally these various methods of employing the corn are not equal in importance. If, to express this shortly in figures, we make out a scale of ten degrees of importance, our farmer will, naturally, give the highest figure 10 to the sustenance of his life; to the maintenance of his health he will give, say, the figure 8; then, going down the scale, he might give the figure 6 to the improvement of his fare by the addition of meat, the figure 4 to the enjoyment he gets from the liquor, and, finally, to the keeping of parrots, as expressing the least degree of importance, he will give the lowest possible figure 1. And now, putting ourselves in imagination at the standpoint of the farmer, we ask, What in these circumstances will be the importance, as regards his wellbeing, of one sack of corn?

Eugen von Bohm Bawerk
The Positive Theory of Capital, III.IV.9


From this he states that the farmer will obviously not feed the parrots, as they provide the least utility to the farmer, and as such, the fifth sack of corn is worth the utility provided to him by the parrots. This is valuation on the margins, considering value in terms of added or subtracted units.

When we look at this situation of total utility, we assume that one sack of corn would be worth quite a bit, as it would derive the farmer of 1/5 of his life sustaining food. This makes the problems of establishing value on total utility quite plain.

When we apply this to dollars we can see the difference in the values of a dollar at the $10,000 level and a dollar at the $100,000 level. When we apply total utility as you did, giving up 13% is valued the same between both: each gives up 13% of necessary as well as superfluous consumption. We have seen why this thinking fails.

When we apply the more accurate marginal utility of value to dollars we get a very different picture, as the individual at the $100,000 income level will give up 90 percent of his consumption before his valuation of a dollar is similar to that of the person at the $10,000 level.

To sum it up, the Law of Diminishing Marginal Utility states that, as one has more wealth, each additional dollar is less valuable than the last. Therefore, to achieve equal taxation of every dollar, they must be approached with this in mind, meaning that we have to tax a greater portion of the dollars at each increasing level.

I am sure that you know that the US operates on a graduated income tax, in that taxes are assessed based upon the income level of each dollar. To accomplish this marginal tax brackets are set up so that each person pays the same amount for first bracket, for the second bracket, and third bracket. An example of the marginal brackets (http://www.rce.rutgers.edu/money/taxinfo/marginaltaxbrackets2003.asp). From this, you can see that all individuals pay 10% of every dollar they earn up to the $7001st. This mirrors the principles I described earlier.

Therefore, a graduated income tax with marginal brackets, while not perfect (marginal utility fluctuates from individual to individual and is probably not actually measurable), taxes individuals equally, while taxing dollars at different rates.

I am really already sold on the fair tax...
While I'm a big fan of sales taxes (they're far more econmically efficient than income taxes), I also object to the government forcing retailers to shoulder the burden of implementation. The government doesn't actually administer the tax at all - they just collected remitted funds.

I haven't reconciled those in my head, yet.

There is an economic principle that is central to estimates of value. It is called "diminishing marginal utility." It is common sense at its core: the more of a particular item an individual has, the less the individual will value an additional unit. The inverse is also true: the less of a particular item an individual has, the more the individual will value any lost or spent unit.
I reject diminishing marginal utility. It's baldly irrational to value something less simply because you have more of them.

Why would one declare buying a neighbor's lawnmower? :confused:
Because it's required by law?

I reject diminishing marginal utility. It's baldly irrational to value something less simply because you have more of them.

Do you accept marginalism?

Do you accept marginalism?
Of course. Marginalism is a pretty fundamental concept.

Of course. Marginalism is a pretty fundamental concept.

Then why don't you accept diminishing marginal utility?

This is exactly so, which is why I'm against this double taxation.
Now, I can see a levy on houses, cars, bought goods (etc) to pay for police, infrastructure, et al. But if there is an income tax, it is my opinion that taxing anything made OFF of remaining income is wrong.It isn't double taxation. The income made from one's labor is taxed at one point. The income made from the interest of one's savings account is taxed at another point. At no point is the income taxed twice.

Why? It is not at all punitive if everyone is being taxed exactly the same!
Are you alluding to cost of living? Ok they... is the 10K person still living at home with their parents? Do they live in Manhattan or Memphis?Yes, I'm referring to the cost of living. Someone making vastly more than the cost of living can afford to be taxed more than someone making the cost of living, or less than the cost of living.

It appears that JB wishes for the income of savings interest to be taxed, not the actual money being saved. If I am wrong, one of you please direct me to the post that says otherwise.Yeah. I just meant the interest. If I said the savings itself, I mistyped.

I don't think we should have to pay income tax at all. It suggests that what I earn somehow isn't mine. The US gov't takes 20% of what I make, and what do I get for it? I don't get representation. I don't get police protection (it takes any where from 5 to 15 minutes for a response to 911). The borders to my backyard are not secured. I sure as hell don't get medical coverage (that's another $100 per month and it's still lousy). I don't get any of my utilities paid for.

On top of that 20%, there is 6% sales tax everything I buy. There's the property taxes I pay my local municipality in my monthly mortgage payment. For that I get garbage pickup once a week - whoopty-doo! If you don't pay your property tax, they take your property away. What you own isn't even yours.

The gov't has become so over-grown and bloated that they have to take all our money just to make the payments on all of the debt they've accumulated for us. A reasonably sized gov't should be able to function on a 8% sales tax. A better solution would be to force the gov't to make massive spending cuts, and put caps on these RICH career politicians salaries.

So who's up for a revolt? ;)

Then why don't you accept diminishing marginal utility?
Because it's an unreasonable application of the principle.

Marginalism just allows me to measure things at the margins. To generalise universally that marginal utility diminishes doesn't make any sense. A dollar is a dollar. It's buying power isn't affected by how many I have, so how much I value it shouldn't be affected by many I have.

Because it's an unreasonable application of the principle.

Marginalism just allows me to measure things at the margins. To generalise universally that marginal utility diminishes doesn't make any sense.
A dollar is a dollar. It's buying power isn't affected by how many I have, so how much I value it shouldn't be affected by many I have.

Diminishing marginal utility is not universally applied, however, it is applied to wealth.

You make a huge mistake in assuming that marginal utility translates directly into market value, ie buying power of a dollar. Marginal utility translates directly into subjective valuation, how much a dollar is worth to you. That, in turn, drives demand, which as you know, is one of several aggregate forces that determine market values.

Another mistake you make is in saying that marginalism "allows" you to measure things at the margins. Marginalism states that you will make your economic decisions at the margins.

Because you will make your economic valuations at the margins, all things will be judged by the utility one more unit will bring, or one lost unit will forsake. So, it is not buying power that is (directly) determined by marginal utility, it is how much that buying power is worth to you by relating what utility that buying power will have for you.

It is quite plain that the utility of basic necessities is much higher than the utility of a yacht. Therefore, an individual will inherently value those dollars that provide for necessity higher than those that provide for a yacht, and as a rational person will always provide for necessity first, those that pay for frivolous items represent higher level dollars. So, as we gain each consecutive dollar, the next dollar provides us with less utility, and this is expressed by the lower value we place on it.

I don't know if you read all of my original post on the subject, as this was all explained by Bohm-Bawerk's example (I would like for you to explain why his example is incorrect, I did spend a decent amount of time typing that out.)

Or just tell me why this is unreasonable: A pickpocket steals two wallets. Wallet A belonged to a man who has been unemployed and is trouble of losing his house. It contained a hundred bucks. Wallet B belonged to a man who had been working as a CEO of a Fortune 500 company and has a stock options worth ten times worth the house of the owner of Wallet A. Wallet B contains 200 bucks. The loss of wallet A, while less of a haul for the thief, is a much greater loss to its owner than Wallet B.

It isn't double taxation. The income made from one's labor is taxed at one point. The income made from the interest of one's savings account is taxed at another point. At no point is the income taxed twice.

Ah. The way you had it phrased before I thought you wanted to tax savings as well. Sorry, I misunderstood.

Yes, I'm referring to the cost of living. Someone making vastly more than the cost of living can afford to be taxed more than someone making the cost of living, or less than the cost of living.

Absolutely not! Suppose a family makes $42,000 and has two kids. In most of Arkansas, that's solid middle class. In New York? That's poor.
Basically, there is no way you can tell me that it is fair to tax people more because they make more dollars.
OTOH, it'd be fine if there was a flat tax (again, say 13%) which didn't start until one made above minimum wage.

You make a huge mistake in assuming that marginal utility translates directly into market value, ie buying power of a dollar. Marginal utility translates directly into subjective valuation, how much a dollar is worth to you.
How much a dollar is worth to me is based on its buying power.

As for the work of Bohm Bawerk, he's measuring the wrong thing. It's not the fifth bag of corn the farmer values less, but the antics of the parrots. He cannot use that fifth bag of corn, so he trades it for the most valuable available thing: parrot antics.

How much a dollar is worth to me is based on its buying power.

You are avoiding all of my examples.

Would you be as willing to donate your last $10 to charity as you would your 1,000,001st - 1,000,010th dollars to charity?

I will answer for you: You wouldn't. Why? Because it is not the buying power that determines its value to you (buying power is an abstract concept), it is the utility that the buying power can bring you.

Since you assign more value to necessary food than you do to purchasable cell phone ringers, even though a meal may cost as much as the ringer you will value the dollars spent on the meal much more.

As for the work of Bohm Bawerk, he's measuring the wrong thing. It's not the fifth bag of corn the farmer values less, but the antics of the parrots. He cannot use that fifth bag of corn, so he trades it for the most valuable available thing: parrot antics.

Since the parrots are given up with the fifth bag of corn, he must have assigned the fifth bag of corn the same value as he did the parrots.

Ah. The way you had it phrased before I thought you wanted to tax savings as well. Sorry, I misunderstood.
So we're settled on this?

Personally, I'd prefer no income tax at all. We should do it like we used to: by having the federal government tax the states in proportion to their populations.
Did you ever think about the reasons why they changed to a different (better?) system? The old one probably wasn't as hunky-dory as you think.

Ah. The way you had it phrased before I thought you wanted to tax savings as well. Sorry, I misunderstood. No, it's fine. Looking back at it, I did say savings first, as opposed to the interest on savings.

Absolutely not! Suppose a family makes $42,000 and has two kids. In most of Arkansas, that's solid middle class. In New York? That's poor. Right; the cost of living in New York is higher, so it would be punitive to tax the New York family making that amount of money.
Fortunately, wages tend to be higher where the cost of living is higher.

Basically, there is no way you can tell me that it is fair to tax people more because they make more dollars. Sure I can - the tax rate should represent the benefit that a person receives from the government/services the government provides.

OTOH, it'd be fine if there was a flat tax (again, say 13%) which didn't start until one made above minimum wage.That would be somewhat similar to what Ragbralbur posted, which would be better.

You are avoiding all of my examples.

Would you be as willing to donate your last $10 to charity as you would your 1,000,001st - 1,000,010th dollars to charity?
You've just explained why I don't donate to charity.
Since you assign more value to necessary food than you do to purchasable cell phone ringers, even though a meal may cost as much as the ringer you will value the dollars spent on the meal much more.
But that's crazy. I value the meal more.
Since the parrots are given up with the fifth bag of corn, he must have assigned the fifth bag of corn the same value as he did the parrots.
Only if you assume that all participants necessarily view all transactions as fair.

You've just explained why I don't donate to charity.

But that's crazy. I value the meal more.

Only if you assume that all participants necessarily view all transactions as fair.

If you are going to be obtuse and dodge every point, I will not discuss this with you anymore.

If you are going to be obtuse and dodge every point, I will not discuss this with you anymore.
Your position apparently rests on numerous unstated assumptions which you are unwilling to address. As such, your rhetoric remains entirely unpersuasive.

Your position apparently rests on numerous unstated assumptions which you are unwilling to address. As such, your rhetoric remains entirely unpersuasive.

My assumptions are plain for all to see and have been stated many times:

1. Individuals will assign more utility to those goods that are more necessary.

2. The value individuals assign to goods is directly related to their utility.


I have stated these explicitly in ignored statements, and implicitly in dodged scenarios.