a commentary on taxes

[sugarb]

This was in one of our local papers today:

http://www.irontontribune.com/news/2009/nov/27/want-hear-truth-about-debt-and-taxes/

There are a lot of issues addressed in that one column...probably too many to even mean the point he's making is legitimate to begin with...but the discussion that follows it really caught my interest. I think because Reagan was brought up, and there was a comment stating something I wasn't aware of. So I'll ask you folks.

Is it true that Reagan raised taxes more than any other peacetime President?
What did that poster mean? I thought that Reagan lowered taxes, but did he only lower taxes for the extremely wealthy? And was that offset by an increase in Soc. Security taxes for everyone else? *Is* it a myth that Reagan lowered taxes?

 

[Francesca R]

America's tax is one of the most complicated in the (rich) world so it's easy to argue a lot of things. I know that the total tax + social contribution take is pretty low compared with the rest of the G-whatever. Also that most of it comes from tax on income and rather little of it from tax on spending or property or wealth. Certainly top income tax rates were cut a lot in the 1980s but the same is true in several other countries too, and to be honest this makes little difference to the total amount of government revenue.

America has a reputation for "giving the rich a break" but a lot of this is exaggerated, or at least, will be assuming the GWB tax cuts end (which is a racing certainty). Because US tax is more skewed to income than other countries (it is the only big economy without VAT) it is probably more progressive than most.

 

[sugarb]

America's tax is one of the most complicated in the (rich) world so it's easy to argue a lot of things. I know that the total tax + social contribution take is pretty low compared with the rest of the G-whatever. Also that most of it comes from tax on income and rather little of it from tax on spending or property or wealth. Certainly top income tax rates were cut a lot in the 1980s but the same is true in several other countries too, and to be honest this makes little difference to the total amount of government revenue.

America has a reputation for "giving the rich a break" but a lot of this is exaggerated, or at least, will be assuming the GWB tax cuts end (which is a racing certainty). Because US tax is more skewed to income than other countries (it is the only big economy without VAT) it is probably more progressive than most.

Francesca R, hello. Yes, I find our tax system quite complicated. Recently I've been trying very hard to better understand them, but there are just so many factors it really does seem overwhelming to me. I had always thought that the rich should not be penalized any heavier than anyone else, that we should pretty much contribute equally in terms of percentages, but I am wondering if my thoughts there are flawed. So it helps to hear others opinions.

I don't mean to sound stupid, but what is VAT? I should probably know that, I'm guessing.

 

[Arcade22]

I don't mean to sound stupid, but what is VAT? I should probably know that, I'm guessing.

http://en.wikipedia.org/wiki/Value_added_tax

 

[Brainster]

IIRC, the argument is that Reagan lowered taxes dramatically in 1981, then increased them substantially in 1982 (but not above the 1980 levels). Thus the 1982 tax increase is frequently referred to as the biggest tax increase of all time, although combined the two tax acts turned out to be a pretty substantial tax decrease.

 

[sugarb]

http://en.wikipedia.org/wiki/Value_added_tax

Value added tax. Thank you, Arcade22! Going to read now.

 

[leftysergeant]

Francesca R, hello. Yes, I find our tax system quite complicated. Recently I've been trying very hard to better understand them, but there are just so many factors it really does seem overwhelming to me. I had always thought that the rich should not be penalized any heavier than anyone else, that we should pretty much contribute equally in terms of percentages, but I am wondering if my thoughts there are flawed. So it helps to hear others opinions.

The bolding above is mine, to point out where I think your reasoning is flawed.

The wealthiest tax payers are benefitting at a higher rate than the rest of us from the existance of our infrastructure, thus should be expected to contribute at a higher rate to its up-keep. Further, the highest earners neccessitate great government al outlays. On that basis alone, a graduated income tax makes sense.

The accumulation of too much wealth into too few hands has NEVER been good for any civilization. No civilization ever collapsed because the poor were too well-fed, or because there was little competition from outsiders for the trade in a community.

I totally dislike a VAT because it does impose more of a burden on manufactures. It were better, in terms of encouraging a rebirth of our industries, to raise tariffs, especially against those ocuntries where working people are not paid what they deserve. It does us no good to import $200 athletic shoes from countries where people cannot afford enough rice to achieve normal growth, because they are not going to buy enough of anything from us to make it worth our while. But if we can sell blue jeans to the Germans, it does us no harm to buy their shoes.

 

[Arcade22]

The wealthiest tax payers are benefitting at a higher rate than the rest of us from the existance of our infrastructure, thus should be expected to contribute at a higher rate to its up-keep.

How have you come to this conclusion?

 

[Kestrel]

America has a reputation for "giving the rich a break" but a lot of this is exaggerated, or at least, will be assuming the GWB tax cuts end (which is a racing certainty). Because US tax is more skewed to income than other countries (it is the only big economy without VAT) it is probably more progressive than most.

Most state and local governments in the US do impose sales tax and other regressive taxes. This helps make the total tax burden in the US regressive instead of progressive.

 

[sugarb]

Okay, from what little reading I've done so far (the value added tax is a bit confusing, but I'll get it), a value added tax *is* being proposed now in our government. Which means I'd better be learning something about it, eh?

It is considered an indirect tax? That is interesting. I think something similar to that already exists in terms of getting more than just one tax out of consumer items. In our state, if we purchase items out of state, we are supposed to report each of those on our tax forms and then pay the sales tax of those items, regardless of having already paid a sales tax on those items in another state. In other words, two states are profitting from one purchase, and ultimately, this isn't a good thing for consumers I don't think.

Does a value added tax add to the end price of a consumer product? And are sales taxes still applied as well to the end consumer? In other words, in each incremental step of production, to distribution and finally sale, a government is receiving multiple taxes on that one item? Have I got that right?

 

[sugarb]

The bolding above is mine, to point out where I think your reasoning is flawed.

The wealthiest tax payers are benefitting at a higher rate than the rest of us from the existance of our infrastructure, thus should be expected to contribute at a higher rate to its up-keep. Further, the highest earners neccessitate great government al outlays. On that basis alone, a graduated income tax makes sense.

The accumulation of too much wealth into too few hands has NEVER been good for any civilization. No civilization ever collapsed because the poor were too well-fed, or because there was little competition from outsiders for the trade in a community.

I totally dislike a VAT because it does impose more of a burden on manufactures. It were better, in terms of encouraging a rebirth of our industries, to raise tariffs, especially against those ocuntries where working people are not paid what they deserve. It does us no good to import $200 athletic shoes from countries where people cannot afford enough rice to achieve normal growth, because they are not going to buy enough of anything from us to make it worth our while. But if we can sell blue jeans to the Germans, it does us no harm to buy their shoes.

Hello, leftysergeant. When I say "penalized", I mean it no differently than if one were to say low earners are "rewarded" by receiving in some cases tax refunds in excess of their contributions. It would seem to me that those are actually the people benefitting most from our infrastructure (those who get more then they pay in), and I have no problem with that. But without the wealthy, I also realize that those people wouldn't be able to get more than they contribute, so to my mind that is a redistribution of wealth that is necessary. I just don't have friendlier terms for it than penalties and rewards.

I agree with much of the rest of your post. I don't understand value added tax enough to really comment on that part of it, but...I have serious problems with importing goods that sell for extremely high prices, as if they were still being manufactured here in the states, when we know that the actual people doing the manufacturing aren't getting paid what, in our terms, is a fair wage.

What I am wondering is if there would be a system that would benefit everyone equally in terms of services and cost. Such as a flat tax, but that still doesn't address offshore accounts or profits made on the backs of what, to our minds and society, would be slave labor.

 

[sugarb]

IIRC, the argument is that Reagan lowered taxes dramatically in 1981, then increased them substantially in 1982 (but not above the 1980 levels). Thus the 1982 tax increase is frequently referred to as the biggest tax increase of all time, although combined the two tax acts turned out to be a pretty substantial tax decrease.

Brainster, ah, okay I see what you mean. So basically the tax burden on individuals was still less than levels prior 1980, but the full decrease was unsustainable.

 

[WildCat]

Because US tax is more skewed to income than other countries (it is the only big economy without VAT) it is probably more progressive than most.

But our corporate income tax rates are far higher than any European country I know of, and of course this cost ultimately gets passed on to consumers as a hidden tax on them. American politicians like to hide the taxes people pay.

 

[WildCat]

I totally dislike a VAT because it does impose more of a burden on manufactures.

No such thing is possible. Any tax on manufacturers ultimately must be paid by their customers, you and me. There is no free lunch.

 

[Francesca R]

Most state and local governments in the US do impose sales tax and other regressive taxes. This helps make the total tax burden in the US regressive instead of progressive.

Sales tax is generally applied at significantly lower rates than VAT (which is 15%-20%). Same for excise duties. The net result is that the US raises a significantly lower fraction of its government receipts from consumer spending. On that measure alone, it is less regressive.

 

[Skeptic]

The accumulation of too much wealth into too few hands has NEVER been good for any civilization.

Which is why communism is a catastrophe; in it, whatever wealth is still produced after the communist system killed all incentive to work and produce, is accumulated in the hands of the tiny group at the top whose job it is to make sure wealth is distributed "fairly".

 

[Francesca R]

But our corporate income tax rates are far higher than any European country I know of, and of course this cost ultimately gets passed on to consumers as a hidden tax on them. American politicians like to hide the taxes people pay.

Correct about more coming from tax on companies. Not correct to say this is all passed on to consumers. Indeed that's a reductio-ad-absurdam of tax policy used by those who understand almost nothing about it. I'll let it go by as a slip.

 

[WildCat]

Correct about more coming from tax on companies. Not correct to say this is all passed on to consumers. Indeed that's a reductio-ad-absurdam of tax policy used by those who understand almost nothing about it. I'll let it go by as a slip.

If it doesn't get passed to the consumers who pays it? I suppose you could pay your workers less, or offer fewer benefits, or fire some workers and try to get by with less, but it's not likely to come from corporate profits.

 

[Francesca R]

I had always thought that the rich should not be penalized any heavier than anyone else, that we should pretty much contribute equally in terms of percentages

"Equal in terms of percentages" (for income tax) is commonly known as "flat tax" and is not considered progressive. When coupled with consumption tax (which is normally a flat rate with essential exemptions) and capital gains tax (usually a lower rate than income, with higher thresholds before it kicks in too), a flat income tax rate would typically mean that a smaller percentage of a wealthy person's total earnings (profits, income, capital gains) is taxed than a poor person's. For this reason, the first part of progressive income tax scales tend to just restore this "equality".

Hello, leftysergeant. When I say "penalized", I mean it no differently than if one were to say low earners are "rewarded" by receiving in some cases tax refunds in excess of their contributions. It would seem to me that those are actually the people benefitting most from our infrastructure (those who get more then they pay in), and I have no problem with that. But without the wealthy, I also realize that those people wouldn't be able to get more than they contribute, so to my mind that is a redistribution of wealth that is necessary. I just don't have friendlier terms for it than penalties and rewards.

Redistribution isn't the only aim of tax, and neither is fairness. First and foremost it is to raise revenue for the state in the most efficient way possible--which means the way that distorts/reduces economic performance least--in order to provide public goods. Taxes generally hamper ("penalise" if you wish) production and wealth generation however they are designed, but some ways of taxing are less growth-reducing than others (these tend to be property taxes and VAT . . . property tax is not regressive but VAT is).

In theory, a state could use the most efficient ways of taxing output, and then redistribute any way it likes independently of this via a structure of transfer payments, although this means building a larger social welfare system. In this respect, the US acts less than Europe, Canada, Australasia and Japan.

 

[Francesca R]

If it doesn't get passed to the consumers who pays it? I suppose you could pay your workers less, or offer fewer benefits, or fire some workers and try to get by with less, but it's not likely to come from corporate profits.

This just goes around and comes around. Where do consumers get their money from? So it all gets passed back to employers and welfare providers . . .

Sure some of it comes out of corporate profits.