Most economists feel it's correct to tax consumption, not income. Taxing income has the effect of compound-taxing investment, which is A Bad Thing. This is why the capital gains tax rate is 15%, since capital gains usually come from money put down that was already taxed.
So we get unfair situations, where a business founder is taxed once on his initial investment, again on his company's income tax, and finally on capital gains; whereas someone like Romney is taxed much less.
One obvious way to fix this is to protect investment accounts. You know how a traditional IRA is tax deductible when you invest, and taxed when you withdraw? Open up more tax-advantaged investment accounts like that[1]. Money isn't taxed until it's withdrawn, presumably to be spent. With such a system in place it will also become reasonable to tax the rich at a very high rate, without inefficiencies like over-taxing transient income or "destroying jobs".
The argument the author presents is strange to me. He says, essentially, that for economic reasons it's fine to tax capital gains at a lower rate. But then in the next paragraph he calls it "unfair". So... he proposes an unsustainably low flat tax rate, which he just implied would be bad, but feel fair... doesn't seem like sound economic thinking to me.
"You know how a traditional IRA is tax deductible when you invest, and taxed when you withdraw? Just open that up. Money isn't taxed until it's withdrawn, presumably to be spent."
Huh?
You just wrote that money is taxed when withdrawn, then suggested taxing money when it's withdrawn.
Roth IRAs allow you to deduct tax free, because you pay tax on the money before you invest it, generally a good deal for most people, as you don't know what tax policy will be in effect when you come to withdraw it later, but you do know today's tax policies.
> I've heard a number of arguments over the years against a flat tax. One is that a flat tax is regressive meaning that it penalizes lower income earners by taxing them at the same rate as higher earners. But I think we are all coming to realize that the current system may be even more regressive since most wealthy people find ways to pay lower tax rates.
Let me preface this by saying, I don't necessarily disagree with the ideas presented in this article, however that quoted bit is a very weak argument. Essentially the author is arguing that because the current system is regressive that justifies moving to a flat tax rate. However this does not actually provide an argument for why a flat tax rate is less regressive, rather he only asserts that the current system is not ideal.
If you're going to sell people on the idea, you've definitely got to come up with some strong arguments for your proposal and not just arguments against the current implementation. I think such arguments exist, but this isn't a great presentation of them.
Wouldn't a flat tax with a nice high threshold be as non-regressive as you could get? Say X% of everything you make over $30k? Poor people pay roughly zero. Rich people like us pay almost exactly X%.
Sorted.
Extra points if the government looks at everybody's W-2s & 1099s, decides how much it needs and calculates an X accordingly for that year. Then sends me a bill.
I can attempt that one. "Regressive" is bad only in the sense where it's disproportionately affecting the quality of life of lower-income people.
So if I have a flat tax that only affects incomes over a certain income level, and that income level is set high enough so that a reasonable person's food, shelter, and clothing needs are met, it's a lot harder to argue that the tax is unfairly regressive, especially when you consider the flat tax above a certain income level is actually the same progressive tax we have now but with a single rung on the ladder.
The flat tax proposals, being simple and loophole free, make it more difficult (and more financially burdensome) to game, whereas the current system seems to be designed to allow people to gain by paying accountants to find loopholes. The benefits of a simplified version of the current progressive tax we have seem self-evident.
The idea is to reduce or eliminate the incentive to cheat. Fairness really doesn't factor into it much, although it could be seen as a nice side benefit. End of argument.
Personally, I'd posit that the only truly fair tax is a fixed rate, like "everyone pays $2000 annually." Everyone is entitled to the same protection under the law, and therefore should owe the same amount. Laws which don't meet the criteria that they apply to all people equally should therefore be stricken.
The next closest "fair" thing to me is a retail sales tax, provided that everyone is provided a stipend to cover the tax paid on basic living expenses. That prevents the negative effects of the regressive nature of the tax.
When a 10% corporate tax and 10% income taxes for individuals were introduced in Bulgaria, government ministries and agencies started increasing their indirect taxes to balance their budgets. Suddenly if you are running a business you'll have to pay weird registration fees and if you are fined the fine will be huge too.
Also, If everyone paid 15% (in total) I doubt it would appear fair. Wealthier people may benefit more from government policy, why should they pay the same amount?
A low flat tax rate isn't realistic. Maybe if it was higher it might have worked, but you'll have to have welfare spending to offset taxing people into poverty. Which practically the same as having a progressive tax rate in the end.
> Also, If everyone paid 15% (in total) I doubt it would appear fair. Wealthier people may benefit more from government policy, why should they pay the same amount?
They wouldn't pay the same amount. They would pay the same proportion of their income.
How about replacing income tax with a consumption tax?
The current tax system encourages speculative investment for capital gain and discourages investment for passive income due to lower tax rates on capital gain. Just look at the dismal amount of dividends paid out by companies in the US compared to Australia, where many companies pay out over 50% of their profits in dividends.
A person who earns a $10m a year but only spends $20,000 pays close to the same tax as a person who earns $10m and spends all $10m.
Both contributed lots to society to earn that $10m, but since the first person only spends $20,000 he only claims back a tiny amount from society resources due to him for his contribution. The second person claims back everything, equal in value to his contribution, resulting in no net gain to society. [correction: less net gain, because earning $10m would likely have provided several times that in benefits to society]
Replacing income taxes with only consumption taxes will further increase incentive for production, while discouraging unnecessary consumption. You'd get more people like the first person than the second person, and society will reap more of the rewards of more productive individuals, who use up less resources.
It'll be like society giving out pieces of paper that is put in a building called a bank in return for real goods and services, that are carefully allocated because no one wants to waste anything.
Consumption taxes in practice are incredibly regressive. Someone who earns $20,000 must spend the majority of their money in order to live. Someone who earns $1.2 million will probably spend a small fraction of it.
First, there is already a sales tax, so the guy spending $10m would probably pay $500.000 (5%), or 25 times more than the other guy spend.
Second, low income families spend all their money making ends meet, whereas high income families have a lot more latitude in adjusting their expenditure. Offsetting this with deductions will be a bureaucratic nightmare.
> The second person claims back everything, equal in value to his contribution, resulting in no net gain to society.
While I don't disagree with your larger argument, producer captures only a fraction of the value they created. So earning $10M likely resulted in a huge net gain to society, regardless of their spending habits.
Fred Wilson chooses non representative numbers to make his point: But there is a bigger issue here and that is whether it is good policy for someone of Mitt Romney's or my wealth to pay a lower tax rate than the average hard working american citizen.
Mitt Romney and Fred Wilson are atypical cases.
The bottom quintile pays 4.3% of income in tax, assuming they have any income. The middle quintile pays 14.2%, the nation as a whole pays 20.7%, and the top quintile pays 25.8%. The top 1% pays 31.2% [1].
The difference between the CBO and Fred Wilson's analysis is corporate income taxes.
Suppose Fred Wilson buys 1 share of twitter worth $100. Twitter then makes $10 of profits, which it does not distributed as dividends [2]. This is taxed at the rate of 15-35%, so twitters balance sheet expands by $8.5/share, i.e. Fred Wilson's 1 share is now worth $108.5. He then sells, and pays 15% cap gains, earning back $107.22. To me that looks like a 27.8% tax rate.
So yeah, go ahead and tax cap gains at individual income rates. But eliminate the corporate income tax while you are at it.
Your ignoring 1/2 of Social Security and Medicare taxes. And also not plotting the tax rate of the top 1% or 0.1% both of which are dramatically lower due to not paying Social Security on income over 120k or Medicare on investment income.
The bottom quintile pays over 20% if they have a job. Medicare alone is 15.3%.
Also, corporate income taxes only apply to US investments, which is rarely 100% of any sane persons investments. To top that off if you actually buy stock from a large company their tax rate is often below 5%.
This is interesting but the problem that I see with this argument is that you are ignoring transfer pricing agreements. Basically companies like Twitter (and google, facebook, etc.) use a bunch of complex tax structures in different countries to legally avoid paying corporate income tax. Google paid something like a 2.6% effective tax rate. Others like GE paid a negative percentage.
So the issue here is that in the case of google or any major tech company investors + company only pay the 15% + marginal effective rate of 1 or 2% which is only 17%.
But eliminate the corporate income tax while you are at it.
Or switch to an integrated tax system like Canada has, where you get dividend tax credits (approximately) equal to the taxes the corporation paid on the revenues which resulted in those dividends.
If you make over six digits I don't care what the source is, no-one should get a special rate. Because once you hit that level, there is no way you could convince anyone you are "suffering" even if you decided to work 12 hours a day. At that level work is a choice, where the millions making 4 or 5 digits have no choice.
The question is, how do you calculate income? What deductions are you allowed?
A regular income-earning individual cannot take more than a fixed amount of deductions (in the sense his tax rate is fixed). However, a small business owner or self-employed invididual can deduct business expenses from his income. And there in lies the problem. How do you classify expenses? This creates an incentive to find creative ways of deducting your taxable income, so much that there is an entire industry formed around it.
The "money alone can't buy me any more happiness" line is somewhere around $60-$70k per year in the US. I don't agree with you that working is a choice at a mere 6 figures. Okay, maybe they can work one year and take five to ten years off unlike most people, but when their sabbatical is over they still have to work again. Or maybe it's easier than I thought to set up a $20k/yr passive income source. Maybe at 8 figures working for the next 20-40 years becomes optional, but even then that depends highly on your investments.
A person with a 6 figure income supporting a wife and children and the bills that come with supporting a household vs a single person is very different. Also the rent adjusted difference in places where you can make 6 figures can add 30'000 in before tax income needed to just break even between two regions.
"One is that a flat tax is regressive meaning that it penalizes lower income earners by taxing them at the same rate as higher earners. But I think we are all coming to realize that the current system may be even more regressive since most wealthy people find ways to pay lower tax rates."
So change the current system to prevent wealthy people from paying lower rates, don't just move the goalposts and call it a goal.
The fact that more money often means you can pay lower tax rates doesn't mean those people shouldn't be paying higher tax rates, just that the current laws aren't doing a good enough job at getting them to pay higher rates.
The ability to give tax breaks is one of the most powerful things a congressman can do. Take that away and the congressman will have a hard time justifying (or attracting) bribes/campaign donations. I really don't see congress voting to reduce their own power.
If you replaced all taxes with a simple sales tax, it'd be even more regressive, since a gallon of milk (for example) has a higher relative cost to someone who makes $20,000 than someone who makes $2,000,000.
Also, it could have an unintentionally bad effect on our (now very consumer-driven) economy. You don't want to discourage people from spending money.
I love the idead of a flat tax. I think H&R Block might not be so excited by something like that though... imagine if we could all file our taxes in under 5 minutes??? The accounting industry would certainly take a hit...
This is perhaps another reason there is such opposition to removing tax deductions and simplifying the code. There are tonnes of people who need a complex tax code to make their current jobs relevant. So much inertia holds us back from getting to a better place.
> And so lately I've been more and more attracted to the idea of a flat tax where everyone pays the same tax rate on income above a minimum amount
That's not a flat tax. It is a progressive tax with two brackets. People who reach the second bracket pay a variable overall percentage that rises the more they make. I have never heard anyone make a convincing argument that this is better that a progressive tax with multiple brackets.
In fact, a progressive rate with multiple brackets is what you get if you apply a two bracket "flat" tax serially. What I mean by that is suppose that for each major department or function of the government you had a separate tax specifically to fund that department or function, with a two bracket structure. You get a separate tax bill for each of these in some specified order, with the taxes on each being deductible when computing the taxes for the ones that follow.
If you take this to a limit, imagining a separate small two bracket tax for every single thing the government does that needs money, and then replace the thousands of very small brackets with a smooth marginal tax rate curve, you'd get a monotonically increasing curve.
> And then I often think of my two brothers who probably pay 40-50% of their income each year in federal, state, and local taxes. It just seems so unfair.
If the author really thinks his 28% tax rate is very unfair in light of his two brothers paying 40-50% taxes, he could donate the difference between 28% and 40-50% for himself to the Treasury each year, and effectively be paying a 40-50% rate.
It isn't just unfair that he is paying a lower rate. It is unfair that everyone like him is paying a lower rate. Him donating money will have no effect on the unfairness, only on his guilt.
That said, while I benefit personally from the low long term capital gains tax, carried interest is ridiculous.
> The theory in taxing capital gains at a lower rate than ordinary income is that the wealth that was invested that produced the capital gains has already been taxed once when it was earned.
Whenever someone argues this point (not fw, in this case) and alludes to being double-taxed, I like to remind them that only the gain (minus any loss) is taxed...so there is no double-tax. ...and why someone would invest in stocks or startups vs bonds is that the rate of return is potentially much greater. I don't think there needs to be an extra incentive (in the form of lower tax rates) for investors. ... That argument seems to be a smokescreen.
On another note: I'd love to see a tax rate (or fair analysis) based on discretionary income.
A progressive tax system addresses this a bit...and, in my opinion, this is why moving to a flat tax would benefit the rich and hurt the poor.
A good precursor to the tax discussion would be heightened transparency via public access to all tax returns. E.g.
Since 2002, all Norwegian citizens' salaries and net worth has been accessible to all.
Amongst other things, it would give a better picture of political candidates' motivations as they propose various tax "reforms".
I think the key takeaway here is that complexity is a completely different thing than policy.
We've had all sorts of politicians make all kinds of great speeches about various policies to implement with the tax code.
All that got us was a complex mess. Inside that mess was a lot of corruption paid for by lobbiests. You can hide a lot of cronyism in a tax code. I think no matter what you want the tax system to do, as technologists we can ask you to make it do that in a very simple, understandable way. So I support a flat tax, but not because it's "fair." I care about structure, I don't care about fair. Make it understandable, and then we can all decide whether it's fair or not. We'll vote people in and out of office depending on whether it's fair or not. Make it complex and we're stuck just voting on tax code depending on how emotionally somebody's speech appeals to us. We've found that while this will work for a few decades, it's not scalable over longer periods of time.
So when an investor pays 15% "income" tax, it's on money that his company already paid 28% tax on (for a total of 39.8% tax). But as it's capital gains, there's a capital investment - money which again had to be earned, taxed and subjected to a risky investment.
It seems to me that if the benchmark tax rate is 40% (AVC says his brothers pay 40-50% on their salaries), and the 15% rate is raised, it would be beneficial for the investors to simply take a salary and bonus instead?
At least in the US, the average actual corporate tax rate is much lower than the statutory (by about half). Corporations get deductions far beyond what individuals do.
In the furore about Mitt Romney paying 15% tax I have not seen one comment which makes this point in his favour: The tax return does not show all taxes that a person pays, and so it's an inaccurate way to compare tax rates between two people.
In particular: corporation taxes (effectively paid by shareholders) and sales taxes should be added to the mix when talking about tax rates.
[+] [-] cynicalkane|14 years ago|reply
So we get unfair situations, where a business founder is taxed once on his initial investment, again on his company's income tax, and finally on capital gains; whereas someone like Romney is taxed much less.
One obvious way to fix this is to protect investment accounts. You know how a traditional IRA is tax deductible when you invest, and taxed when you withdraw? Open up more tax-advantaged investment accounts like that[1]. Money isn't taxed until it's withdrawn, presumably to be spent. With such a system in place it will also become reasonable to tax the rich at a very high rate, without inefficiencies like over-taxing transient income or "destroying jobs".
The argument the author presents is strange to me. He says, essentially, that for economic reasons it's fine to tax capital gains at a lower rate. But then in the next paragraph he calls it "unfair". So... he proposes an unsustainably low flat tax rate, which he just implied would be bad, but feel fair... doesn't seem like sound economic thinking to me.
[1] Greg Mankiw mentions this idea in a NYT op-ed: https://www.nytimes.com/2012/01/22/business/four-keys-to-a-b... . I've seen a few other economists also toss around this idea also.
[+] [-] mgkimsal|14 years ago|reply
Huh?
You just wrote that money is taxed when withdrawn, then suggested taxing money when it's withdrawn.
Roth IRAs allow you to deduct tax free, because you pay tax on the money before you invest it, generally a good deal for most people, as you don't know what tax policy will be in effect when you come to withdraw it later, but you do know today's tax policies.
[+] [-] llambda|14 years ago|reply
Let me preface this by saying, I don't necessarily disagree with the ideas presented in this article, however that quoted bit is a very weak argument. Essentially the author is arguing that because the current system is regressive that justifies moving to a flat tax rate. However this does not actually provide an argument for why a flat tax rate is less regressive, rather he only asserts that the current system is not ideal.
If you're going to sell people on the idea, you've definitely got to come up with some strong arguments for your proposal and not just arguments against the current implementation. I think such arguments exist, but this isn't a great presentation of them.
[+] [-] jasonkester|14 years ago|reply
Sorted.
Extra points if the government looks at everybody's W-2s & 1099s, decides how much it needs and calculates an X accordingly for that year. Then sends me a bill.
[+] [-] drblast|14 years ago|reply
So if I have a flat tax that only affects incomes over a certain income level, and that income level is set high enough so that a reasonable person's food, shelter, and clothing needs are met, it's a lot harder to argue that the tax is unfairly regressive, especially when you consider the flat tax above a certain income level is actually the same progressive tax we have now but with a single rung on the ladder.
The flat tax proposals, being simple and loophole free, make it more difficult (and more financially burdensome) to game, whereas the current system seems to be designed to allow people to gain by paying accountants to find loopholes. The benefits of a simplified version of the current progressive tax we have seem self-evident.
The idea is to reduce or eliminate the incentive to cheat. Fairness really doesn't factor into it much, although it could be seen as a nice side benefit. End of argument.
Personally, I'd posit that the only truly fair tax is a fixed rate, like "everyone pays $2000 annually." Everyone is entitled to the same protection under the law, and therefore should owe the same amount. Laws which don't meet the criteria that they apply to all people equally should therefore be stricken.
The next closest "fair" thing to me is a retail sales tax, provided that everyone is provided a stipend to cover the tax paid on basic living expenses. That prevents the negative effects of the regressive nature of the tax.
[+] [-] unknown|14 years ago|reply
[deleted]
[+] [-] dimitar|14 years ago|reply
Also, If everyone paid 15% (in total) I doubt it would appear fair. Wealthier people may benefit more from government policy, why should they pay the same amount?
A low flat tax rate isn't realistic. Maybe if it was higher it might have worked, but you'll have to have welfare spending to offset taxing people into poverty. Which practically the same as having a progressive tax rate in the end.
[+] [-] bjornsing|14 years ago|reply
They wouldn't pay the same amount. They would pay the same proportion of their income.
[+] [-] meric|14 years ago|reply
The current tax system encourages speculative investment for capital gain and discourages investment for passive income due to lower tax rates on capital gain. Just look at the dismal amount of dividends paid out by companies in the US compared to Australia, where many companies pay out over 50% of their profits in dividends.
A person who earns a $10m a year but only spends $20,000 pays close to the same tax as a person who earns $10m and spends all $10m.
Both contributed lots to society to earn that $10m, but since the first person only spends $20,000 he only claims back a tiny amount from society resources due to him for his contribution. The second person claims back everything, equal in value to his contribution, resulting in no net gain to society. [correction: less net gain, because earning $10m would likely have provided several times that in benefits to society]
Replacing income taxes with only consumption taxes will further increase incentive for production, while discouraging unnecessary consumption. You'd get more people like the first person than the second person, and society will reap more of the rewards of more productive individuals, who use up less resources.
It'll be like society giving out pieces of paper that is put in a building called a bank in return for real goods and services, that are carefully allocated because no one wants to waste anything.
An example of a consumption tax is the VAT.
[+] [-] rdouble|14 years ago|reply
Only if you ignore sales tax and other taxes incurred when spending money (hotels, fuel).
[+] [-] Aloisius|14 years ago|reply
[+] [-] mseebach|14 years ago|reply
Second, low income families spend all their money making ends meet, whereas high income families have a lot more latitude in adjusting their expenditure. Offsetting this with deductions will be a bureaucratic nightmare.
[+] [-] spindritf|14 years ago|reply
While I don't disagree with your larger argument, producer captures only a fraction of the value they created. So earning $10M likely resulted in a huge net gain to society, regardless of their spending habits.
[+] [-] yummyfajitas|14 years ago|reply
Mitt Romney and Fred Wilson are atypical cases.
The bottom quintile pays 4.3% of income in tax, assuming they have any income. The middle quintile pays 14.2%, the nation as a whole pays 20.7%, and the top quintile pays 25.8%. The top 1% pays 31.2% [1].
The difference between the CBO and Fred Wilson's analysis is corporate income taxes.
Suppose Fred Wilson buys 1 share of twitter worth $100. Twitter then makes $10 of profits, which it does not distributed as dividends [2]. This is taxed at the rate of 15-35%, so twitters balance sheet expands by $8.5/share, i.e. Fred Wilson's 1 share is now worth $108.5. He then sells, and pays 15% cap gains, earning back $107.22. To me that looks like a 27.8% tax rate.
So yeah, go ahead and tax cap gains at individual income rates. But eliminate the corporate income tax while you are at it.
[1] http://www.cbo.gov/ftpdocs/100xx/doc10068/effective_tax_rate...
http://www.cbo.gov/publications/collections/tax/2010/graphic... (Graphs are for 2007 data, not 2006 data. Not much difference though.)
[2] Dividends are taxed at individual income tax rates, except sometimes.
[+] [-] Retric|14 years ago|reply
The bottom quintile pays over 20% if they have a job. Medicare alone is 15.3%.
Also, corporate income taxes only apply to US investments, which is rarely 100% of any sane persons investments. To top that off if you actually buy stock from a large company their tax rate is often below 5%.
[+] [-] cluda01|14 years ago|reply
So the issue here is that in the case of google or any major tech company investors + company only pay the 15% + marginal effective rate of 1 or 2% which is only 17%.
[+] [-] gwillen|14 years ago|reply
[+] [-] cperciva|14 years ago|reply
Or switch to an integrated tax system like Canada has, where you get dividend tax credits (approximately) equal to the taxes the corporation paid on the revenues which resulted in those dividends.
[+] [-] ck2|14 years ago|reply
If you make over six digits I don't care what the source is, no-one should get a special rate. Because once you hit that level, there is no way you could convince anyone you are "suffering" even if you decided to work 12 hours a day. At that level work is a choice, where the millions making 4 or 5 digits have no choice.
[+] [-] adharmad|14 years ago|reply
A regular income-earning individual cannot take more than a fixed amount of deductions (in the sense his tax rate is fixed). However, a small business owner or self-employed invididual can deduct business expenses from his income. And there in lies the problem. How do you classify expenses? This creates an incentive to find creative ways of deducting your taxable income, so much that there is an entire industry formed around it.
[+] [-] Jach|14 years ago|reply
[+] [-] mahyarm|14 years ago|reply
[+] [-] orangecat|14 years ago|reply
[+] [-] corin_|14 years ago|reply
So change the current system to prevent wealthy people from paying lower rates, don't just move the goalposts and call it a goal.
The fact that more money often means you can pay lower tax rates doesn't mean those people shouldn't be paying higher tax rates, just that the current laws aren't doing a good enough job at getting them to pay higher rates.
[+] [-] chrisbennet|14 years ago|reply
[+] [-] sunsu|14 years ago|reply
[+] [-] nkohari|14 years ago|reply
Also, it could have an unintentionally bad effect on our (now very consumer-driven) economy. You don't want to discourage people from spending money.
[+] [-] orangecat|14 years ago|reply
But shouldn't be. Especially mortgage interest; it should be painfully clear by now that blindly encouraging people to buy houses is not a good plan.
[+] [-] cnorgate|14 years ago|reply
This is perhaps another reason there is such opposition to removing tax deductions and simplifying the code. There are tonnes of people who need a complex tax code to make their current jobs relevant. So much inertia holds us back from getting to a better place.
[+] [-] tzs|14 years ago|reply
That's not a flat tax. It is a progressive tax with two brackets. People who reach the second bracket pay a variable overall percentage that rises the more they make. I have never heard anyone make a convincing argument that this is better that a progressive tax with multiple brackets.
In fact, a progressive rate with multiple brackets is what you get if you apply a two bracket "flat" tax serially. What I mean by that is suppose that for each major department or function of the government you had a separate tax specifically to fund that department or function, with a two bracket structure. You get a separate tax bill for each of these in some specified order, with the taxes on each being deductible when computing the taxes for the ones that follow.
If you take this to a limit, imagining a separate small two bracket tax for every single thing the government does that needs money, and then replace the thousands of very small brackets with a smooth marginal tax rate curve, you'd get a monotonically increasing curve.
[+] [-] pwg|14 years ago|reply
If the author really thinks his 28% tax rate is very unfair in light of his two brothers paying 40-50% taxes, he could donate the difference between 28% and 40-50% for himself to the Treasury each year, and effectively be paying a 40-50% rate.
[+] [-] Aloisius|14 years ago|reply
That said, while I benefit personally from the low long term capital gains tax, carried interest is ridiculous.
[+] [-] jpdoctor|14 years ago|reply
[+] [-] tomjohnson3|14 years ago|reply
Whenever someone argues this point (not fw, in this case) and alludes to being double-taxed, I like to remind them that only the gain (minus any loss) is taxed...so there is no double-tax. ...and why someone would invest in stocks or startups vs bonds is that the rate of return is potentially much greater. I don't think there needs to be an extra incentive (in the form of lower tax rates) for investors. ... That argument seems to be a smokescreen.
On another note: I'd love to see a tax rate (or fair analysis) based on discretionary income.
A progressive tax system addresses this a bit...and, in my opinion, this is why moving to a flat tax would benefit the rich and hurt the poor.
[+] [-] Geekette|14 years ago|reply
Amongst other things, it would give a better picture of political candidates' motivations as they propose various tax "reforms".
[+] [-] DanielBMarkham|14 years ago|reply
We've had all sorts of politicians make all kinds of great speeches about various policies to implement with the tax code.
All that got us was a complex mess. Inside that mess was a lot of corruption paid for by lobbiests. You can hide a lot of cronyism in a tax code. I think no matter what you want the tax system to do, as technologists we can ask you to make it do that in a very simple, understandable way. So I support a flat tax, but not because it's "fair." I care about structure, I don't care about fair. Make it understandable, and then we can all decide whether it's fair or not. We'll vote people in and out of office depending on whether it's fair or not. Make it complex and we're stuck just voting on tax code depending on how emotionally somebody's speech appeals to us. We've found that while this will work for a few decades, it's not scalable over longer periods of time.
[+] [-] tzs|14 years ago|reply
1. For a given taxable income, what is the tax?
2. What is taxable income?
To make a flat tax you fiddle with item #1. This involves changing a page of the tax code.
To make a less complicated tax, you fiddle with item #2. This involves changing the other 71000 pages of the code.
[+] [-] ashconnor|14 years ago|reply
http://www.slideshare.net/rahamin/estonian-taxes-and-tax-str...
[+] [-] mseebach|14 years ago|reply
It seems to me that if the benchmark tax rate is 40% (AVC says his brothers pay 40-50% on their salaries), and the 15% rate is raised, it would be beneficial for the investors to simply take a salary and bonus instead?
[+] [-] comicjk|14 years ago|reply
[+] [-] gwillen|14 years ago|reply
[deleted]
[+] [-] MarkMc|14 years ago|reply
In particular: corporation taxes (effectively paid by shareholders) and sales taxes should be added to the mix when talking about tax rates.
[+] [-] comicjk|14 years ago|reply
[+] [-] veyron|14 years ago|reply
[+] [-] tomjohnson3|14 years ago|reply
A progressive tax system seems more fair to me (though not perfect) because there is some link to discretionary income.