What does fair mean when it comes to income taxes?

[NewtonTrino]

I'm curious what the common opinion here is about fairness in taxes. The main reason I ask is that the tax burden is firmly on those who make the most money. In my mind if the system was "fair" everyone would be paying an equal share of the national upkeep. Instead people consider an equal and often increasing percentage of income to be the fair thing.

So why should I have to pay a larger portion of the national upkeep than someone who makes less money? Is it just a case of practicality?

What would be wrong with a tax system where we divide the amount of the national budget by the numbers of citizens and send everyone an equal bill? We all get the same vote in how the money is spent after all. It might wake people up to the amount of money the government pisses away in our names.

And yes I'm biased because I've been working on my taxes going WTF.

Thoughts?

 

[lionking]

Bill Gates gets the same tax bill as the homeless. Yeah, that sounds fair.

 

[AvalonXQ]

Bill Gates gets the same tax bill as the homeless. Yeah, that sounds fair.

Why isn't it? Are you claiming that Bill Gates gets more value from the government than the homeless does?
If so, can you substantiate that claim?

 

[Phrost]

One of the thoughts behind a graduated income tax system is that the wealthy derive more benefit from the protections of government (police, fire, etc) because they own more things that need protection.

Another thought is "hey you got stuff, I want stuff, I can vote for the government to give me your stuff".

 

[paximperium]

Why isn't it? Are you claiming that Bill Gates gets more value from the government than the homeless does?
If so, can you substantiate that claim?

Al Gore's internet.

 

[Francesca R]

The marginal utility of income is normally thought of as something that decreases as income rises. Also it is a fairly mainstream view that a minimum threshold income should be a statutory entitlement in most rich countries. Both of these points argue that a fair tax code is a progressive one (one that takes an increasing share of income as income rises)

 

[Francesca R]

(I have heard some far right wingnuts suggest that a fair tax only taxes the poor because they are the ones who use public services most)

 

[a3sigma]

What would be wrong with a tax system where we divide the amount of the national budget by the numbers of citizens and send everyone an equal bill?

OK, do the arithmetic. The Federal Budget is around 3.5 Trillion. There are around 138 Million taxpayers. That's about 25,000 per taxpayer. Median household income is about 45,000. A two earner family would be taxed around 100%. And all that's not counting state and local taxes which might be half that much again.

Since your question deals with fairness, look at it another way. It's estimated that around 50% of all wealth in the U.S. is in the hands of fewer than 1% of the population. Shouldn't that 1% bear 50% of the tax burden?

 

[Michael Redman]

(I have heard some far right wingnuts suggest that a fair tax only taxes the poor because they are the ones who use public services most)

You don't say. . .

Are you claiming that Bill Gates gets more value from the government than the homeless does?

 

[AvalonXQ]

OK, do the arithmetic. The Federal Budget is around 3.5 Trillion. There are around 138 Million taxpayers. That's about 25,000 per taxpayer. Median household income is about 45,000. A two earner family would be taxed around 100%. And all that's not counting state and local taxes which might be half that much again.

... which would imply that a $3.5 trillion budget isn't sustainable.
But we knew that.

 

[Francesca R]

Why isn't it? Are you claiming that Bill Gates gets more value from the government than the homeless does?
If so, can you substantiate that claim?

Yes of course he does. He has more assets and property in which his interest is protected by enforced rule of law. This answer is elementary.

 

[AvalonXQ]

Hey, I'll admit that the Fair Tax sounded good to me until the overseas loophole problem came into play.

 

[AvalonXQ]

Yes of course he does. He has more assets and property in which his interest is protected by enforced rule of law. This answer is elementary.

Excellent. So how can we quantify this, and tax him accordingly?

 

[Francesca R]

Excellent. So how can we quantify this, and tax him accordingly?

Well the value of protected interest he gets is proportional to his wealth, or income, or some combo of the two. Not that that is the only government service out there.

Calculating it exactly is not efficient so tax codes make approximations. Hence the existence of a few tax bands only

 

[NewtonTrino]

The marginal utility of income is normally thought of as something that decreases as income rises.

I guess one question would be, is this actually true? For example if I had $100M sitting in the bank right now I would be investing it into all kinds of different research groups and companies to help deliver needed services to the public and try and solve some of our problems.

Also it is a fairly mainstream view that a minimum threshold income should be a statutory entitlement in most rich countries.

Wouldn't a more logical view be that there should be a minimum statutory CONTRIBUTION by everyone to the public good? Of course if you're not capable of contributing that's a different thing. But why should an able bodied person not be required to contribute? If you can't pay taxes you can always put your labor into the pool to help out directly.

Both of these points argue that a fair tax code is a progressive one (one that takes an increasing share of income as income rises)

Sure, they argue this but is it substantiated?

Even if the marginal utility of income does decrease what does that have to do with contributing to the national upkeep?

One thought I had for a tax system was something like:

Total Budget / Number of Citizens = Tax bill sent to everyone.

However the tax bill would contain two numbers. The first is the number that would be required if everyone paid their bill. The second is the number you should send in that takes into account the percentage of people who don't pay (e.g. the GAO keeps stats on the amount of people that pay and figure out what we really need).

Paying is completely voluntary but if you don't pay there is some kind of social penalty (no voting? public humilation? Not allowed to contribute to political campaigns? Other ideas?). Note that you would never be cutoff from any government services for not paying but you might lose your right to participate in the government.

Thoughts? And no I don't think we could ever change to this system, it's a thought experiment for when I setup my own country

 

[NewtonTrino]

Well the value of protected interest he gets is proportional to his wealth, or income, or some combo of the two. Not that that is the only government service out there.

Calculating it exactly is not efficient so tax codes make approximations. Hence the existence of a few tax bands only

What if we did something like my idea above but we also had a property tax on all property. Say 1% per year of all property over $100M. This would be used to offset the tax bill sent to everyone in my other scheme.

 

[Number Six]

Not to be too primitive about it, but realistically the tax system has to be good enough to the masses of people so that they buy into it. I mean, if you tell the giant mass of people in the middle and at the bottom "Screw you, we're going to make you pay like crazy," why wouldn't they bother to just revolt? Revolution isn't going to happen in the US because the people in the middle and at the bottom pay a small enough amount in taxes (in many cases, zero) that they go along.

Although a lot of people pay little or nothing and I can see how that would bother the people that pay a lot, the flip side of that is the following. A lot of people work full time jobs, pay little or not taxes and yet still don't have much to show for it. I think the USA would better off if people that played into the system, worked hard, kept their nose clean, etc, made a better wage and then paid some of that in taxes. They'd be both taking (in the form of good pay) and giving (in the form of working hard and then paying taxes). But instead, some do what they're supposed to do and yet are still hit with "You pay so little in taxes compared to the rich guy, therefore you're a sponger" thing.

I don't know, maybe I'm worrying about semantics too much. But isn't it something like only 40% of people pay any income tax at all? That leaves a lot that don't pay anything, whether their working to earn wages or not.

 

[†= Crap!]

With my income the difference between 20% and 40% income tax would have a substantial impact on my life-style. It may very well effect my ability to get rent payed, whether or not I can fix my car if breaks down, or weather or not I can afford some particular medical treatment.

The difference between 20% and 40% for a millionaire is negligible. Oh, they can only afford one yacht? Cant quite scrape the funds together for that second summer home? Cry me a effing river! The wealthy pay more because they can afford to pay more. That's fair.

 

[a3sigma]

One thought I had for a tax system was something like:

Total Budget / Number of Citizens = Tax bill sent to everyone.

However the tax bill would contain two numbers. The first is the number that would be required if everyone paid their bill. The second is the number you should send in that takes into account the percentage of people who don't pay (e.g. the GAO keeps stats on the amount of people that pay and figure out what we really need).

What part of the figures I posted above did you not understand? OK figure it by citizen. A 3.5 Trillion dollar budget is over 10,000 dollars for every man, woman and child in the U.S. (I don't count the unborn, or the millions of frozen embryos.) Or, 40 thousand for a family of 4 regardless of the number of earners. With median income at 45K, far more than half of all households could not possibly pay their "fair share" and would be among your count of those who don't pay their taxes. So the wealthy take up the slack as you suggest. This is called a "progressive income tax."

 

[Francesca R]

I guess one question would be, is this actually true? For example if I had $100M sitting in the bank right now I would be investing it into all kinds of different research groups and companies to help deliver needed services to the public and try and solve some of our problems.

It's the utility to you that this point is concerned with, not the spillover utility to others. The latter does not decline, any more than--say--the utility that Cancer Research UK experiences from its millionth donated £1.

Wouldn't a more logical view be that there should be a minimum statutory CONTRIBUTION by everyone to the public good? Of course if you're not capable of contributing that's a different thing.

Not particularly, because of the reason you give yourself.

But why should an able bodied person not be required to contribute? If you can't pay taxes you can always put your labor into the pool to help out directly.

Libertarians and an-caps often make this point when they protest against taxation. For some reason, forced labour (or "compulsory donation of leisure time") is generally disliked as a concept even though it is not morally any different from forced donation of earnings from labour. (So--yes you have a point, and I will leave it for someone else to rebut it because logically I can't)

Sure, they argue this but is it substantiated?

Eh? Those two reasons do substantiate it.

Even if the marginal utility of income does decrease what does that have to do with contributing to the national upkeep?

If you accept that the marginal utility to you declines as you make your second million in a year, the marginal utility to the state of each dollar of it taxed does not. The state (society's demand for cash) is approximately insatiable (although ethics should dictate to what extent it should be satiated, but it is still probably going to to experience almost no decline in utility from your cash as your income rises, whereas you will experience a decline.)